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Taking the first steps to buying your first home can seem quite daunting. However, The Openwork Partnership can give you a helping hand in all things ‘Mortgage’, and this article will provide clear insights into why choosing the right mortgage is extremely important for your future financial well-being.
There are many different mortgages available in the UK. Each has its benefits, but choosing the right one for you and your lifestyle is crucial. You are going to be paying your loan back for many years to come, therefore, you want to ensure that you can continuously pay your mortgage off, even during a change in circumstances.
Let's take a look at the main types to look for.
A fixed-rate mortgage is a deal that you make with the lender, usually lasting 2-5 years, although it can last longer. It ensures that the interest rate you pay will remain the same during this fixed term.
The benefit of this type of mortgage is that you can expect to pay the same amount each month until the deal term is over, allowing for easier budgeting.
However, this type of mortgage can see you paying more than market rates if general interest rates drop. Additionally, if you have a longer-term fixed rate, then, paying it off in full before the end of the fixed term can incur charges.
Variable-rate mortgages mean that the interest rate will change in line with a rate of interest that is set by the individual lender. These are also known as SVRs (Standard Variable Rates). There are two other main types of variable-rate mortgages:
It follows the same principle as an SVR but offers a discount on the interest rate. The amount you pay is determined by your loan provider and can vary monthly.
The interest rate you pay tracks another interest rate - usually the Bank of England’s base rate - plus a set percentage. This will move up and down month by month, however, they often have a collar, so if the base rate goes down too low, your mortgage payment might remain at a set floor rate until the interest rates come back up.
Variable rates mean you could end up paying less overall, but, they are unpredictable. Therefore, ensuring you have a reliable financial cushion is an effective strategy to navigate this type of loan.
Interest-only mortgages aren’t for the fainthearted. You only pay the interest rate during the mortgage term and then pay off the mortgage in full once it has ended. This type of mortgage is only suitable if you know for certain that you will have a windfall of cash at the end of your mortgage term.
A repayment mortgage does exactly what it says on the tin. You repay a portion of the loan itself and some of the interest each month. It guarantees that your mortgage is paid off in full by the end of the mortgage term, typically 25 to 35 years.
This type of loan allows you to access better interest-rate deals further down the line as you build up more equity (i.e., repay more of your loan).
It is very easy to get obsessive over the interest rates when searching for a mortgage, but there are many more factors you should also consider when making a decision.
When deciding on the type of mortgage, and who you want to loan from, you should first look at your financial history and current financial situation.
Another main area for consideration is your plans. Have a real think about your risk tolerance long term, and if you can afford to go for a variable-rate mortgage or fixed-term.
Additionally, will you be making any significant career moves, are you starting a family, retiring, or are you planning on moving house within the timeframe of your current mortgage? All of these questions can affect the type of mortgage that suits you.
Whilst you can certainly get the ball rolling on searching for a mortgage, the reality of house hunting and mortgages can get overwhelming. That is why it is never too early to ask for expert advice.
The Openwork Partnership can help you navigate the complexities of your life, your plans for the future and mortgage options to suit you. Advisors will assess your needs, financial goals, risk tolerance, and current financial situation. Using this information, they can recommend the best mortgage for you and provide you with solutions for issues that could arise.
Making a well-informed decision about your mortgage is extremely important, plus there are so many to choose from! You can choose ones that remain stable over a set period, yet you may end up paying more than market rates when the Bank of England’s interest rates fall. Or, you can choose a mortgage that follows the national interest rates, but this means you are susceptible to market fluctuations, paying different amounts each month.
There are many more types of mortgage, but with a professional adviser, you can gain advice and support in your decisions, safe in the knowledge that they have assessed your overall situation. The Openwork Partnership has advised over 1.2 million clients, with 822 firms across the UK. So, no matter where you live, you can always access expert advice with The Openwork Partnership.