A fixed-rate mortgage works by establishing fixed monthly payments on your home for a set amount of time. These fixed rates do not change, even if the Bank of England's base rate does.
Fixed-rate mortgages usually last between 2 and 5 years, though some can last longer. Should you wish to cancel before the end of the fixed period, you will normally encounter an early-termination fee.
Fixed-rate mortgages are great for budgeting purposes, since the amount you pay never changes. Fixed-rate mortgage holders are protected against any fluctuation in a lenders' standard variable rate within the set period. And low interest rates within the first couple of years helps to keep these mortgages both accessible and affordable.
Extended tie-in periods could mean that you pay a higher rate once the fixed rate has ended. Conversely, there is also the possibility that the lender's standard variable rate could fall below the fixed rate during your agreement.
Currently, though, the Government's Funding for Lending Scheme has driven down fixed-rate mortgages to record low levels.
Find out more about fixed rate mortgages.
A tracker mortgage is a variable rate mortgage which follows the changes in base rate set by the Bank of England for a set period. So payments change if the Bank of England changes the base rate.
When the base rate goes up or down, your interest payments follow by the same amount.
Find out how you could be affected by a base rate change through our mortgage calculator, 'what if rates change?', and find out more about tracker mortgages here.
Remortgages work when a homeowner switches from one lender to another on the same property. They can be a great way to save money on your home loan.
As your equity stake in a property rises and the amount you owe reduces, mortgage providers will be more willing to offer cheaper rates because you are deemed to be of lower risk. Cheap remortgage deals can benefit you by reducing your monthly payments.
There is a lot of competition for remortgage options, especially for those with 30% or 40% of their loan already repaid. Choosing a low-interest rate remortgage option should be straightforward, though homeowners need to be careful that high arrangement fees do not counteract the savings that would be made by switching to a lower cost loan.
Read more about remortgages here.
First-Time Buyer Mortgages
Buying your first home will be your biggest financial commitment, so it's very important you get your finances organised. There are a lot of first-time buyer mortgages on the market so it can be daunting choosing the right one.
When searching, you might want to consider the following:
- Loan-to-value (LTV) - What is the value of the property? (e.g. £200,000) How much can you pay in deposit? (e.g. £20,000) The remainder constitutes the loan-to-value that you will need. (e.g. = 90%). For more help, check out our calculator: how much can I borrow?
- Fees and Charges - Some lenders offer fee-free deals for first-time buyers. Considering fees can exceed £1,000, this can prove a hefty addition to your expenses and deserves consideration.
- Eligibility - Some top deals have restrictions, such as requiring the borrower to switch current accounts.
- Options for family assistance - Some lenders allow family to help out: for example, by offsetting savings to lower the loan-to-value requirement (see below).
First-time buyer mortgages come in fixed- and variable-rate options. Read more about first-time buyer mortgages here.
If you're interesting in buying a property specifically to rent, a buy-to-let mortgage (or landlord mortgage) will help you to get your property investment underway. Becoming a private landlord can be trickier than it first appears, and there's plenty to consider before making the leap.
Firstly, these mortgages tend to be more expensive. Lenders normally demand a higher deposit - a minimum of around 25% - and the interest rates tend to be higher than a standard fixed-rate or tracker mortgage of equivalent loan-to-value.
Secondly, lenders will calculate the amount you can borrow based upon the rental income you expect to receive as well as your existing income. It is important to make a realistic assessment of what you can expect to receive in a particular area, to avoid landing yourself with a large and unsustainable mortgage. Will you be able to afford the mortgage repayments without the support of rental income?
Thirdly, there are other costs involved. Landlord insurance (and legal insurance) are additional expenses, and you can expect to lose some of your rental income to maintenance of the property and agents' fees.
Notwithstanding this, however, conditions are currently very strong for landlords, with strong demand for rental property and consistent rent growth.
Check out our buy-to-let calculators: what rent to charge and how much to borrow, and find out more about buy-to-let mortgages here.
An offset mortgage allows you to "offset" your savings against the value of your mortgage. You sacrifice the interest you would have gained from your savings; but in lowering your mortgage value, your interest payments will fall. Plus, it's a tax-efficient option, because you're not losing chunks of your interest returns to the taxman.
A quick example of an offset mortgage: if you had £15,000 savings and a £150,000 mortgage, you would only pay interest on £135,000. Using this example, you could save paying interest on 10% of your mortgage.
Read more about Offset Mortgages here.
No-Fee mortgages don’t eliminate all costs; however they are free of upfront fees and allow you to pay over the time of your mortgage. They usually come with higher interest rates than other mortgages.
The higher interest rates with no-fee mortgages could prove more expensive over the longer term, whereas on a shorter mortgage it could be very beneficial to have a no-fee application.
Read more about No-Fee Mortgages here.
Sharia'a Approved Home Purchase Plan Information and apply for an Islamic Mortgage here.
No Broker Fee and offering Commercial Mortgages with rates from 1.5% over Bank of England Base or up to 80% LTV.
Read and apply for a Commercial Mortgage here.