When you buy a home, it tests your decision-making skill. However, your decision depends on the available options in the property market. A mortgage is the ultimate truth for every homebuyer because a significant investment or purchase is always difficult to complete without financial assistance. The variety of mortgage deals is in access but which one is best for you is always a question.
A DETAILED LOOK AT VARIED ASPECTS TO THE VARIED ASPECTS OF VARIOUS MORTGAGE TYPES MAY HELP YOU PICK THE BEST OPTION.
FIRST Of All, understand the Types Of Mortgages
To make a choice, obviously, you need to know about the options. Here are the mortgage types that you can choose from –
- Repayment mortgage – When you borrow funds and repay through monthly installments, it is called a repayment mortgage. The repayments include both the interest and the principal part.
- Interest-only mortgage – A property loan in which the borrower pays only the interest part as the installment. The principal part goes in a lump sum amount at the end of the mortgage term.
- Fixed-rate mortgage – A mortgage product in which the rate of interest remains fixed for a particular time. It is usually three years to 5 years, and during this time, the monthly installment amount remains fixed. After that, variable rates are applicable.
- Discounted rate mortgage – The mortgage that is obtained on an interest rate below the standard variable rate of the lender. The mortgage company can change it at any time.
The basic definition of the available options helps you get a better understanding of what is more suitable. The above is the popular version of mortgage the people usually consider. You should choose the one that is affordable in repayments.
Now make an easy choice in the light of comparison
A comparison between the varied mortgage options can help you choose faster. Here is a comparison of the varied alternatives of the mortgage. HERE IS AN INFORMATIVE CONTRAST BETWEEN THE VARIED MORTGAGES THAT ARE SURE TO HELP YOU DECIDE WHICH ONE IS BEST FOR YOUR NEEDS.
|a) REPAYMENT MORTGAGE||a) FIXED-RATE MORTGAGE|
|b) INTEREST ONLY MORTGAGE||b) DISCOUNTED RATE MORTGAGE|
REPAYMENT AND INTEREST ONLY MORTGAGE
|Repayment mortgage||Repayment mortgage|
|HOW TO REPAY?||Monthly repayments of interest + principal||Monthly repayments of interest + principal|
|HOW THE OBLIGATION ENDS?||Every installment decreases the total loan amount thus, the burden of the obligation. Part payments can bring a sharp drop in the burden of the obligation.||The principal part is paid at the end, and thus it remains pending until the end.|
|WHAT IS THE RISK?||If you do not make timely repayments to miss them, you can lose the house.||If you do not have ample funds to pay off the funds at the term end, the lender can take the possession. Same if you miss the interest installments.|
FIXED-RATE AND DISCOUNTED RATE MORTGAGE
|FIXED-RATE||DISCOUNTED RATE MORTGAGE|
|HOW TO REPAY?||The repayments are fixed for a specific time and then change according to the latest market rates the concerned lender follows.||It tracks SVR. If the lender has 5% SVR and the borrower has received a 1% discount, the installments are according to 4%, and in comparison, it keeps increasing and decreasing.|
|HOW THE OBLIGATION ENDS?||Once the fixed-rate payment is over the rest of the tenure remains under the effect of variable rate in repayments until the term ends.||Throughout the tenure, the repayments remain affected by the SVR and discount received to a borrower from the lender. This is how it ends.|
|WHAT IS THE RISK?||During the fixed-rate period, if the market goes down with a lower rate, you cannot get its benefit and has to repay according to the decided interest rate.||If the SVR increases too much, the payments may go out of repaying capacity and can cause missed or delayed payments in turn loss of property.|
Now the PROS & CONS for more information before the final decision
|Repayment mortgage||Customized and affordable||If the interest rate goes up, monthly installments swell up in size|
|Big part payments can lessen the burden of the obligation||Initial years you majorly pay interest part which reduces a few pennies in the total obligation burden.|
|Interest-only mortgage||Quite affordable due to smaller payments that consist only of the interesting part.||The final lump sum amount at the end of the tenure is quite big, and the borrower may not have that amount at the end and thus may lose the property.|
|A good option for the buy-to-let borrowers as they can invest the money saved from non-payment of principal in other investments.||Paying the interest as an installment does not reduce the overall burden of the mortgage.|
|Fixed-rate mortgage||Beneficial due to fixed repayments due to the decided rate of interest in the initial years.||It is always challenging to qualify for a fixed-rate mortgage.|
|It is easy to maintain a balance in personal finances with certainty.||It can be more expensive, and once the fixed term gets over, you are exposed to the already risky market of variable rates.|
|Discounted rate mortgage||Predictable due to the discounted rate you qualified for.||The final decision of the limit of the discounted rate is in the hands of the lender.|
|Easy to bargain on the discount part if you have a strong repaying capacity.||The mortgage company can anytime increase the rate. It provokes uncertainty.|
The final thing is
It is a time taking task to decide which mortgage type is more suitable, but an in-depth study of the choices can help clear all the doubts. Still, if something is there, any online mortgage broker In UK can help complete the task. You reach better conclusions when following an organized and professional approach. All the best for the big decision, read the information carefully and try to take out a wise solution.