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Navigating Your Way Through the World of Mortgages

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Choosing the right mortgage can be a difficult task – the pressure is on to get the best deal now and mortgage customers will want to ensure they are not left of pocket in the long run. However, with all the different types of mortgages out there, it can be hard to know where to turn and what to ask your mortgage provider for.

So, to help homebuyers form a clearer idea of what’s what, this brief rundown of what to expect from each option should prove useful. Firstly, mortgage customers will want to get to grips with the basics of deposits and repayments.

The deposit is the amount a homebuyer needs to put down before they are given a mortgage. Usually about 20 to 25 per cent of the purchase price of a new home, buyers who will struggle to come up with such an amount could seek other options such as the 95 per cent mortgage, where the buyer’s deposit will only need to equal five per cent of the purchase price.

Although a tempting choice for some, mortgage customers should bear in mind that it is always better to put down the largest deposit they can afford, as they will then be eligible to a much more favourable interest rate.

Now on to the mortgage types…

The standard variable rate (SVR) is the most basic type of mortgage, and a set rate of interest will be charged by the mortgage lender. Expect this rate to be around two per cent above the Bank of England’s base rate. However, as the name suggests, the rate can be changed by the lender and the repayments will change accordingly.

Similar to the SVR, the tracker mortgage is tied in to a rate, but it is to the Bank of England’s base rate, not the to the mortgage lender’s SVR. Only fluctuations in the base rate will change the amount you pay.

For those who wish to know exactly what they will be paying each month, a fixed-rate mortgage could be the right move. Payments will stay the same for a fixed period – usually for two, three or five years depending on the type of fixed-rate mortgage chosen. Those who go for the fixed-rate option will avoid paying more if interest rates rise.

When extra help is needed to get on the property ladder, there are several options to investigate.“Rent to buy” schemes provide tenants with cheaper rent in a house while they save up a deposit to buy that property. Shared equity reduces the amount of deposit required on some new-build homes, so could be a helpful option to consider. 

 

 

The post Navigating Your Way Through the World of Mortgages appeared first on Smart Wealth.


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