Different Types of UK Home Mortgages
When considering which mortgage to take out, a home owner is offered a bewildering range of mortgages. See: Different Types of Mortgages
However, there are a few key differences.
1. Repayment vs Interest Only Mortgages
A standard repayment mortgage means that you pay both the interest on the loan plus a contribution to reducing the capital debt. This means at the end of your mortgage term you will have paid off the debt and own the house. This has a clear advantage, in that, it ensures you will be debt free. It also reduces the amount of interest payments in the long term. As your capital reduces the amount of interest you have to pay falls.
An interest only mortgage will lead to cheaper mortgage payments, but you need to find an alternative way to save up and pay off your mortgage debt. An interest only mortgage may be most desirable if you are a first time buyer, struggling to get on the property ladder and pay monthly mortgage payments.
- Conclusion: If you can afford to pay a repayment mortgage this is definitely preferable.
2. Fixed vs Variable
Another choice you will need to make is between a fixed rate mortgage and a variable mortgage. A variable mortgage will depend upon the Bank of England’s base rate changes. If they increase interest rates, then the monthly cost of your mortgage payments will rise. Note: interest rates are relatively low now (5.5%) However, in 1992 they reached 15%
Fixed Rate mortgages offer greater security and make it easier to plan. However, at the beginning, they may be a little more expensive than a variable one.
- Conclusion: It depends on what you think will happen to interest rates. If you think interest rates will rise, then a fixed rate is a good idea. If interest rates are likely to fall a fixed rate would prove more expensive. However, it is difficult to predict long term interest rates.
Difficulty Getting a Mortgage?
Because of Rising house prices in the UK, many homeowners, especially first time buyers, are struggling to get on the property ladder. It can be difficult to borrow enough to be able to get a sufficient mortgage. If you fall into this category. Don’t despair, there are often ways around this. It is worth pursuing different options which may enable you to get a mortgage.
Will House Prices Fall?
House prices may fall. However, this shouldn’t necessarily stop you buying a house. If a house is viewed as a place to live or long term investment then there is no problem with falling house prices.
Also, if house prices do fall, it is likely interest rates will be able to be lower; this will actually make it cheaper to be able to afford mortgage payments.