Three questions to decide the best mortgage for you

Getting on the property ladder is an ambition that the majority of Brits would like to achieve. In fact, most adults across the world desire the stability that home ownership brings and its potential as an investment.

However, for those who are yet to take this crucial first step onto the property ladder, the world of mortgages can be a scary and confusing place to be. A lot of would-be first-time buyers can be overwhelmed by all the different type of mortgages that are out there.In reality though, the best mortgage product for any individual can be deciphered using just three questions...

Question One: repayment or interest only?

Repayment mortgages involve both the repayment of the money borrowed and any interest. These are the most popular types of mortgages and guarantee complete ownership of a house at the end of the mortgage.An interest-only mortgage is cheaper because it only involves interest payments. Homeowners will still have to find a way of paying off the value of the home though when they get to the end of the deal, perhaps through an investment or a separate high-interest savings account. This could certainly be an option for anyone who has an investment vehicle they are confident will returns higher than what their mortgage provider is charging them.

Question Two: fixed rate or tracker

Fixed rate mortgages will charge customers the same amount each month regardless of the economic outlook. This is great for homeowners who are on a tight budget or generally don't like surprises. They could up paying more than tracker customers if national interest rates dip though.

The interest paid on tracker mortgages will move up and down with the Bank of England (BoE) base rate, meaning homeowners will pay varying amounts of interest per month. Most tracker mortgages will remain a certain percentage above the BoE rate. It's a great option for those who believe interest rates will drop and/or remain low throughout the term of their mortgage. As long as they remain lower than the best fixed rate mortgages, you're on to a winner.

The real question to ask yourself when choosing between these types of mortgages is can you afford for your mortgage repayments to rise?

Question Three: is it worth thinking outside the box?

There are a few lenders who will offer mortgages with unique terms and conditions and some at more competative rates based on locations for example cheap bedforshire mortgages. Many of them are a lot rarer now than they used to be as banks and building societies have tightened their lending conditions.Capped mortgages are like a half-way point between fixed rate or tracker mortgages. They offer variable interest rates but promise it won't exceed a certain percentage.

Offset mortgages, which combine customers' bank accounts with their mortgage, are a great option for those with a bit of money in the bank. Offset mortgage lenders will only charge interest on the difference between the amount owed and the amount a customer has in the bank, meaning repayments are often much lower. Banks and building societies are becoming increasingly willing to do this in order to attract more current account and savings account customers.

Flexible mortgages are much less strict about overpayment or underpayment and can be a good choice for self-employed homeowners or those expecting serious life changes in the future.

All three of these could prove appealing.

It's best to shop around thoroughly before committing to a mortgage. Asking yourself these three questions will make it far easier to jump onto the property ladder with confidence! 

Since the past 160 years, Cambridge Building Society has been instrumental in providing funding for people buying their own homes and a trusted home for people wishing to save.  

Share |