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Now, more than ever, choosing the right kind of mortgage is vital

Choosing the right type of mortgage can be time-consuming but it is time well spent, says Matthew Brewer, associate and conveyancing team leader at Awdry Bailey & Douglas Solicitors in Swindon
Choosing the right type of mortgage can be time consuming but it is time well spent. Not only can you potentially save yourself thousands of pounds, but buying a home is likely to be the largest purchase you will ever make, so it is essential to be aware of all your options.
There are two decisions that need to be made early on.
1. Whether you want an interest-only or a repayment mortgage
2. What type of mortgage will suit you best.
Interest only vs Repayment Mortgage
Interest only mortgage
With an interest-only mortgage you only pay the interest on the sum borrowed, which means that at the end of the mortgage term the amount that you initially borrowed will still be outstanding.
Repayment mortgage
With a repayment mortgage each month you pay not only the interest, but also a proportion of the loan amount initially borrowed. As you will be paying off both capital and interest the monthly instalments will be higher than with an interest-only mortgage, but you will be reducing the amount of your indebtedness as each month goes by.
What type of mortgage will suit you best?
Even in today’s changing financial climate, there are still many different types of mortgages on the market, which one is right for you will very much depend upon your own individual circumstances.
But let’s look at the several main types of mortgage products:
1. Standard variable mortgage
With this type of mortgage the interest you pay is linked to the lenders Standard Base Rate which will move up and down with changes in the Bank of England Base Rate.
2. Fixed-rate mortgage
The interest rate will be set at a fixed percentage for a certain time period. The advantage is that you will have the certainty of knowing how much you will need to pay each month.
3. Capped mortgage
With these mortgages you will know that your monthly instalments will not go above a set figure within the fixed period. Below the capped figure however, the interest rate can vary.
4. Discount mortgage
You will have an interest rate which is discounted below the lender’s Standard Variable Rate for a fixed period.
5. Tracker mortgage
The interest rate on a tracker mortgage tracks the Bank of England Base Rate which may be different to the Standard Variable Rate set by the lender.
6. Offset mortgage
With this type of mortgage, you can offset your savings against the mortgage loan amount. This will mean that you won’t receive any interest on your savings, but you will pay less interest on your mortgage.
A few other things to look out for are:
Early redemption charges
With many fixed-rate, discounted or capped mortgages you may be required to pay an Early Redemption Penalty if you repay your mortgage within the first few years.
Cashback
Some lenders will give you a lump sum payment when your mortgage starts which can be helpful when you are moving home
Interest period
Interest can be worked out on a yearly, monthly or daily basis. Daily interest is usually better because you will pay less interest overall as each payment you make reduces the balance on which the next interest instalment is calculated.
Three key tips to consider:
1. Do your research and compare the best mortgage deals before you sign yourself up and be very clear on what sort of mortgage meets your needs.
2. Make sure you know what you can afford and consider what your repayments would be if/when interest rates change. There are a variety of online mortgage calculators that can provide you with this information.
3. Speak to more than one provider or speak to a mortgage broker.  Ideally, an independent broker who can search the whole market for you, rather than being restricted to a certain number of lenders.
Moving home is an exciting and positive time, but it can also be a bit of a rollercoaster ride! To make your experience of moving home as straightforward, stress-free and easy as possible choose a law firm where you can really get to know the lawyer acting for you, where you can meet them face to face and choose someone who has real local knowledge.
Matthew Brewer is an associate and conveyancing team leader at Awdry Bailey & Douglas Solicitors in Swindon. 

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