Buying your first house can be both one of the most satisfying experiences of your life and also one of the most terrifying, especially if you don’t have friends and family who’ve purchased a house before and gone through the complex mine field experience of finding the best mortgage. So let’s look at some of the mortgage available and see how they differ and the advantages and disadvantages of each mortgage. NatWest, Santander and all other big banks will most likely offer both of these types of mortgages below.
The interest rate (the percentage of the loan amount you are charged every year) on a tracker mortgage “tracks” the bank of England’s base interest rate. Say the base rate is currently 0.50%, so if you took out a tracker mortgage from Santander or any other typical high street bank with a rate that is 2% above the base rate you’ll be paying an interest rate of 2.50%. If the Bank of England put the base rate up to 1%, your mortgage rate would increase to 3.00% and in turn your monthly repayments would increase. The rate can also go down as well as up. These mortgages typically have an introductory period of 2-5 years then they’ll change to whatever the lenders typical rate is. This tends to be higher so it’s a good idea to switch at the end of the introductory term.
With fixed mortgages you pay the same amount each month because the interest rate that you’re paying back on is fixed for the initial introductory term of the mortgage. Eg 2 years. This has the advantage of you knowing what you’ll be paying every month, so if the bank of England’s interest rates suddenly spike up you won’t get a nasty shock and will just continue paying back at your normal rate. It also however does have the disadvantage that if the interest rates decrease you won’t get anything slashed off your monthly mortgage repayments.
A final word of advice
Finally it’s very important to stress that if you do go for a variable interest rate mortgage you must be confident you can afford an increase in monthly payments of potentially a few hundred pounds if there is a large spike in interest rates. Typically they are steady rises but you should always hope for the best and plan for the worst.
If so need any mortgage calculator tools www.ultimatemortgagecalculator.uk has some great easy to use ones.