Explaining U.K. Mortgages and Which is Best for You
It is becoming more and more difficult for prospective home buyers to save for a down payment, while also dealing with income levels that may not qualify them for the type of home they preferred. These two factors are first and foremost the most difficult objectives to meet for prospective buyers searching for mortgages that suit their needs.
Types of Mortgages
There are many different types of mortgages that suit a variety of circumstances. There are mortgages that are available to assist those who have trouble saving for a down payment. As well as some that are available to those who wish to share the home buying experience.
More recently, many first-time home buyers are finding it increasingly challenging to select from the different types of mortgages available to them. Additionally, the sharp increase in the average price of a home has become an issue for many who are working within a specific budget. The following explains the more popular types of U.K. mortgages available today.
- Fixed Rate Mortgages- A fixed rate mortgage duration is approximately 2-5 years with longer terms possible. This rate is fixed for the whole period of the loan, which is then re-negotiated when the term is up. This type of mortgage is especially popular when rates are low, and are locked in as long as possible for big savings.
- Variable Rate Mortgages- A variable rate mortgage depends on the rate given by the lender, and can fluctuate with the Bank of England’s base rate. Currently, these rates are normally between 1.5 – 3.5% higher than the rate determined by the BoE.
- Capped Rate Mortgages- Capped mortgages are comparable to fixed rate mortgages, the difference being that the rate will drop when the lender’s standard variable rate drops below the capped rate. However, if the variable rate rises above the capped rate, the customer’s rate will not follow.
- Discounted Rate Mortgages- This type of mortgage has a discount applied to the lenders standard variable rate for a pre-selected amount of time. The discounted rate will fluctuate along with the lenders standard variable rate by the same percentage.
- Tracker Rate Mortgages- A tracker rate mortgage follows the base rate determined by the Bank of England, at a pre-arranged adjusted rate. This rate is can last for the whole term of the mortgage, or for a fixed period of time. More commonly, tracker rate mortgage duration is between 2-10 years.
- Cash Back Mortgages- A cash back mortgage supplies the customer with a lump-sum cash payment upon approval and finalization of the mortgage application. This can be as much as 6% of the approved mortgage amount, but the waiting period can be upwards of 2-3 weeks. This type of mortgage is beneficial for those who will be using much of their savings to provide a sufficient down payment.
- Flexible Mortgages- Flexible rate mortgages allow for flexible payment amounts, which can either be more or less than the regular payment amount without penalty. This makes it easier for those without steady income to adjust their payments accordingly. Some flexible mortgages may even allow the customer to miss a payment and even borrow money on the capital repaid to date. However, there may be some limits among different lenders.
Which Mortgage Option is For Me?
These are just a few of the more popular mortgage options available from leading lenders. Each mortgage option has its benefits depending on your current financial situation. Be sure to review your options with a knowledgeable, respectable lender before choosing any of the mortgages that are available to you. Additionally, compare rates among different lenders before committing and deciding upon any mortgage option.