Which Type of Mortgage is Best for You?

There are an increasing array of mortgage products on offer. see: Different types of mortgages.

There are so many different types of mortgages it can be difficult to know which is the best option for your circumstances. These are some pointers to help you make the right mortgage decision.

High level of savings?

If you are fortunate to regularly have a significant sum of savings in your current account it is definitely worth considering a current account mortgage. The way a current account mortgage works is that it automatically uses your savings to reduce your mortgage debt. Therefore, you will pay lower interest payments, when your current account balance increases. Suppose you have a mortgage debt of £120,000 and current account savings of £10,000. This means your mortgage balance will automatically be reduced to £10,000. Another advantage of this is that you will save paying tax on interest payments. This is quite significant for a high tax income earner.

Struggling to get your First Mortgage?

If you are a first time buyer in the UK, you will probably find it difficult to get a sufficiently large mortgage. Even if your salary is £30,000, a conventional mortgage used to give only 3 times income. A £90,000 mortgage will  buy very little in the south of England, to say the least. Some banks now offer a mortgage based on affordability. This can lead to banks lending upto 5 times income. However, in London, a £150,000 mortgage may still be insufficient. In this situation you may need to consider:

• Self certification mortgage – proof of income is not required, but be careful about borrowing more than you can afford to pay back.
• 50 Year mortgage If you borrow for a longer period, monthly interest payments will be a little more affordable.

Joint Mortgage – Buying a mortgage with someone else increases your combined income, enabling more to be lent

Want to Reduce Monthly payments?

It may be you are experiencing short term financial hardship and therefore, it is is advisable to try and reduce your mortgage payments by as much as possible.  To do this you can consider:
Interest only mortgage – Reduces monthly cost, but you will need to find another way to pay off the mortgage capital.
Extending the mortgage term, some banks may enable you to extend your mortgage term. This increases the total interest payments over the course of the mortgage, however, it reduces the monthly cost of mortgages.

Want to pay off mortgage as soon as possible?

Some people may want to pay off the mortgage as soon as possible. The advantage of this is that you can potential save thousands of pounds in interest payments. To pay off your mortgage as soon as possible it is worth considering:

• Flexible mortgages – enable extra payments to be made
• reduce the mortgage term – if your lender allows it
• Mortgage Cycling – an extreme plan to pay off your mortgage in as little as 10 years.

Types of Mortgages in the UK