Your mortgage types depend on your personal financial conditions because, in the end, you have to bear the obligation. Many factors play their role to give a conclusion finally that what mortgage type should suit you best.
Here is the explicit mention of the versions of mortgage that are best for the borrowers with varied financial priorities.
Advisable Mortgage Type – Fixed-Rate Mortgage and Tracker Rate Mortgage
Good for you if –
- Need Static Monthly Installments
- You Want Certainly In Interest Rates
- You Have Bad Credit Score
FIXED-RATE MORTGAGE – As you know, this mortgage type offers you static interest rates and instalments in the initial years. Usually, the duration is 2 to 5 years when the rates remain fixed.
Why it is best for you? – For many, it can be disturbing for financial stability to bear the volatile variable rate in the initial years after buying a property. They recently spent so much on the big purchase during the formalities. It may not be possible to manage the bumpy monthly instalments that change now and then.
It can affect their monthly budget through derailed income-expense ratio. The fixed-rate mortgage helps you attain stability in the starting years. By the time the static rate period gets over, the borrower can gather back the lost financial stability. You should relate to this if your situation is similar.
A bad credit score person also has many fronts to fight on in the name of expenses. Do you also have this issue? With fixed monthly instalments, you can make secure payments, and if they go on the right time and at the correct date, your credit score can improve.
However, it can be challenging to get mortgages with bad credit on a fixed rate as the repay capacity should be strong. Otherwise, the lender has no reason to take the risk. However, if you have got the approval, you can feel the relief suddenly after the repayments start.
TRACKER RATE MORTGAGE – It is affected by the base rate of the Bank of England, which changes seldom. With base rate, it adds a certain percentage, which is not a higher rate.
Why it is best for you? – The tracker rate is a safe play strategy to avoid vicissitudes of interest rates. It remains in control and rarely goes high because it follows the base rate and the Bank of England does not change its prices very often.
You should know that there is a committee that gathers 8 times in a year to discuss any need for change in the rates. Most of the time, the committee keeps the same interest rate because a slight change affects the complete finance industry of the UK.
Advisable Mortgage Type – Interest-only mortgage
Good for you if –
- You Are Borrowing For Commercial Reasons
- You Have Plans To Sell The House Shortly After Purchase
- To Get Tax Deduction (May Be Applicable ToA Certain Amount Limit)
INTEREST ONLY MORTGAGE – In this mortgage type you pay only interest rates as instalments.
Why it is best for you? – Interest-only mortgages allow you to pay only interest part as the monthly instalment. The principal amount is given at the end of the tenure through a lump sum amount. Usually, the borrowers who are professional landlords opt for the interest-only mortgages.
The business persons or housing companies give houses on rent. A small part from the rent they receive is used to pay the instalments and rest of the money can be invested somewhere else.
Advisable Mortgage Types – Repayment Mortgage, Capped rate mortgage, Variable rate mortgage
Good for you if –
- You have a good credit score
- Strong repayment capacity
- Can afford a big deposit
REPAYMENT MORTGAGE – you make payments every month, and the instalments are addition of interest + principal.
Why it is best for you? – Your good credit score makes your eligible for repayment mortgage because flawless finances show strong repay capacity. You do not need minimal instalments like interest-only; after all, it can be difficult to pay all the money at the end.
Capped Rate Mortgage – These mortgages can increase or decrease in rates, but they never cross the variable-rate decided by the lender.
Why it is best for you? – You have the surety that the rates will not increase after a specific limit. Due to a good credit score, you can get the desired amount and can make significant part payments to get rid of the obligation in advance.
VARIABLE RATE MORTGAGE – It is the most volatile mortgage type in the rate of interest. The lender decides the price, and it can rise to drop anytime. It is also affected by the base rate, but the lender has more liberty to determine its rate.
Why it is best for you? – The variable-rate mortgages are indeed expensive, but when the rates go down, you have the change to exploit the benefit. In this type also you can make significant payments when the prices are low. Through part payments in the initial year, you can pay the interest part quite fast and then your instalments will be small.
The above types serve to varied purposes and suit to different financial conditions of the borrower. Can you relate to any one of the above? If yes, then great, go for the giving suggestion and if no, do not worry. However, the above types are useful for almost every borrower but if you want surely, hire a broker. The professional expertise obtained from the industry can help you know which mortgage type is best for you.