Which mortgage deal is right for you?
It can be difficult to decide which loan is most appropriate for your circumstances, but understanding the pros and cons of different mortgage types makes the decision process a lot easier. Much depends on the global economy and which direction you see interest rates moving during the period for which you're tied in to the loan.
Types of mortgage
Best tracker mortgage A base rate tracker loan mirrors the movement in the Bank of England base rate. You won't be offered the same rate, but subject to a margin, you'll pay the prevailing rate at that time. Standard Variable Rate (SVR) This is the type of loan that you'll have when an existing agreement has concluded. It works in a similar way to a tracker loan, but the lender's margin is higher. You're free to negotiate new mortgage deals. Fixed rate mortgage You'll pay a pre-determined rate of interest on your loan for a defined period of time. The longer the period the APR is set, the harder it is for the bank to determine the prevailing interest rate. Interest-only mortgages A low APR mortgage where you make a separate arrangement to repay the principal. It is often used by property investors and home-owners, seeking to reduce their repayments during a period of financial hardship. Discounted mortgage You'll pay a slightly lower APR for a set percentage of the agreement. This is beneficial for new professionals who are likely to experience substantial income growth over the next few years. Cash-back mortgages Useful for first-time buyers, you'll be given a cash lump sum when you take out a loan with a lender. You'll normally pay a higher APR, but it's useful if you're planning home improvements.
How to choose a mortgage deal
Economic growth If the economy is heading into a recession, you're likely to be favoured by a tracker deal. This is because bank base rates are likely to fall. However, if the economy is showing signs of over-heating, a fixed-rate loan will keep the repayments stable. It isn't easy, but you need to assess the direction of the economy. Personal finances If you're trying to get by on a fixed income and are likely to find it difficult to get by if interest rates suddenly shot up, you're likely to be suited by a fixed-rate loan. This will give you repayment certainty, so you'll always know how much money you need to find at the end of the month.