Most homebuyers in the UK, both first time buyers and those looking for a remortgage, will look for mortgage deals. Over the course of the loan, many will have used a variety of different special offers and rates. What kinds of deals are on offer?
Deals for Fixed Rate Mortgages
Fixed rate mortgages remain popular with many homebuyers, especially those buying a property for the first time. This kind of loan fixes the cost of the monthly repayment for a set period of time (usually between 1-5 years although longer terms are available). The fact that it is so easy to budget with this kind of loan makes it attractive to some; others like this option if they worry that interest rates will rise in the future.
Most fixed rate deals work in a similar way. The primary differences between them tend to be the length of time the offer lasts, the rates charged, arrangement fees and early repayment penalties. Generally, the longer a fixed rate deal lasts, the higher the interest rate that will be charged. Some lenders will offer hybrid deals that include both fixed rate and variable elements.
Variable Rate Mortgage Discount Deals
Those that are considering a variable rate mortgage deal have a variety of options to choose from. These types of mortgages offer ways to save money for those that prefer not to work with a lender's Standard Variable Rate (SVR) but that want to take advantage of any potential decrease in interest rates. Common options include:
- Capped: This kind of product works on variable principles (i.e. interest rates can go up or down) but comes with an upper limit. So, if rates go over a certain point, the mortgage payment will be capped and will no longer rise.
- Cash Back: These loans offer the homeowner a cash back payment when they take out a mortgage. The lender will pay a percentage of the loan once the deal is set up.
- Discount: A discount deal will cut a percentage off a lender's standard interest rates for a period of time.This may be given on a stand-alone basis or as a special short-term offer as part of a different deal.
- Tracker: Tracker mortgages are set to follow bank base interest rates at specific percentages and, like any other variable deal, can go up or down.
It may also be worth considering other types of mortgages as well as the deals that may come with them.
Offset, Current Account and Flexible Mortgage Deals
It's becoming increasingly common for UK homeowners to use variations on traditional mortgage types. Common options on offer here include:
- Offset: Offset mortgages bring together all of the individual's finances into one account (i.e. bank accounts, savings and the loan). This may help some to repay their loan more quickly as income and savings can offset daily mortgage costs and charges to decrease what is owed.
- Current Account: These products work on an offset basis but use the individual's current bank account to work towards mortgage repayment.
- Flexible: A flexible mortgage offers the chance to pay off the loan according to the individual's circumstances at any given time (i.e. they can overpay, underpay and take payment holidays if they wish).
These loans often work on a variable rate basis although some will come with fixed rates/initial offers such as discounts.
Finding Best Buy Mortgage Deals
Choosing the right mortgage deal may involve a variety of factors. Some want to keep their monthly repayments as low as possible. Others may also keep a weather eye out for future changes in interest rates and will opt for a deal that will take rises/falls into account. The best buy for one individual may not be the best buy for another.
Those interested in finding their first mortgage deal, or a new one, may find it useful to think about the following issues before coming to a final decision:
- The costs of mortgage deals and charges that may be payable if a deal is ended early.
- How to find affordable mortgages to suit their budget and payment preferences.
- How to save on mortgage deals and find best buy loans.
- How to use a mortgage calculator to help compare deals.
Carol Finch - Carol Finch is the Topic Editor for Retirement Planning, Budgeting, E-Commerce & Technical/Business Writing on Suite101.
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