Should I take out a fixed-rate mortgage?
January 16, 2009 by admin
Filed under Mortgage Articles
Deciding which type of mortgage to take out can be a difficult decision - especially taking the recent base rate cut into consideration. Your choice of mortgage can potentially save you a lot of money in the long run - or it could cost you more, depending on which way the base rate goes.
Fixed-rate mortgages are a popular choice amongst homeowners, since they ensure you consistently pay the same amount over a set period of time. But are they necessarily a good choice in current housing market conditions?
Advantages of a fixed-rate mortgage
- Offers security. You know how much you will pay towards your mortgage every month - unlike variable-rate mortgages, which are liable to change.
- Increases in the base rate will not affect your mortgage - meaning you could save money compared with a variable-rate mortgage.
Disadvantages of a fixed-rate mortgage
- You will normally have to pay a mortgage arrangement fee. These are normally a few hundred pounds, but for the very best mortgage deals you may have to pay over £1000.
It is common to spread the mortgage arrangement fee across your mortgage payments - but this will of course mean higher monthly payments.
- Just as it is possible to save money, a fixed-rate mortgage could potentially end up costing you more than if you had chosen a variable-rate mortgage. Even if interest rates fall, your mortgage payments will remain the same.
Fixed-rate mortgage in the current housing market
With the base rate recently falling to 3%, and several signs pointing towards further cuts, fixing your interest rate at a level above the current base rate may seem illogical. However, while a fixed-rate mortgage may cost you more in the short term, it’s important to remember that the base rate could go up again.
In short, it’s impossible to predict with 100% certainty what the base rate will do, so choosing a certain type of mortgage is always a gamble, whatever your decision.
Even if you pay more than would have on a variable-rate mortgage for the first few months, a fixed-rate could save you money in the future. Your decision on a fixed-rate mortgage will depend on whether or not you think that may be the case - and how able you are to cope with any changes in your monthly payments.
This article was written by Melanie Taylor, a mortgage expert for Think Money. If you are thinking about getting a mortgage click here.
What You Need to Know About UK Mortgages as a First Time Buyer
January 4, 2009 by admin
Filed under Mortgage Articles
A first time buyer should consider a number of factors before going to purchase a property, such as how much they will be permitted to borrow, how much they can afford to pay per month, the initial cash outlay for fees and deposit, and what kind of mortgage they ought to use. A mortgage broker, who will act as an intermediary to find you the right mortgage, can help immensely to ease this process.
It can be dangerous to borrow too much money to buy a house, no matter how tempting the idea of home ownership is. The problem of negative equity is when your mortgage is worth more than your house, is still a danger. Many first time buyers consider only the monthly payment when they sign up for a mortgage. It also is important to look closely at the full amount you will be paying, and the length of time it will take to repay. Some kind of deposit is normally required, as well. Though there are a few lender who will offer a mortgage for 100% of the price of your house, these are rare, and will ensure a long payment process. It is best to have at least 5% of the purchase price. If you have 10% or more, you can secure a better deal on your mortgage.
There are many different types of mortgage that can be chosen. These include the fixed rate mortgage - with an unvarying interest rate over the life of the loan, the adjustable rate mortgage is one where the interest rate is periodically adjusted based on a index, and the interest-only loan is where for a period of time, the buyer pays only the interest on the loan, then must begin making payments on the principal. These last two types can be tempting to the first time buyer with little income, but can result in more money paid out over the lifetime of the mortgage. An adjustable rate mortgage can be the better deal if interest rates continue to fall, but worse if they rise. Interest only loans permit a buyer who will be in better financial shape in a few years to get a foothold in the housing market. The downside is that the principal will be untouched for those years.
With careful planning and consideration, the housing market need not be frightening or daunting to the first time buyer. All that is needed is a good assessment of your needs and situation.