Buyers' Guide - Mortgages
You may know the difference between a fixed and tracker rate mortgage but do you know how offset deals work? The choice of mortgages can be bewildering, so let Moneywise help with our Buyers' Guide.
When taking out a mortgage there are two key things to decide - how to pay it back and the type of interest rate. These days most people choose repayment mortgages, where you pay back capital and interest every month.
Payments are lower on interest-only mortgages as you aren't repaying capital. So you need a plan to clear your loan at the end of the term - or sell the property.
When it comes to interest rates, the main choice is whether to go for a fixed or a variable rate.
Fixed rates are usually higher, but ideal if you need to know how much your monthly repayments will be.
If you prefer a variable deal, aim to get a discount off the lender's standard variable rate or choose a tracker. Both rise and fall when interest rates change - but only the trackers have to follow it directly.
If you have a decent nest egg you may be better off with an offset mortgage where your loan is linked to your savings.
You don't earn any interest on your money, but you only pay interest on your mortgage, less what's in your savings account.
So, you pay less interest and repay your loan faster.
Whatever type you choose, you need to get the best rate so shop around online or talk to an independent mortgage broker. Don't just compare rates, look at arrangement fees too.
Finally, bear in the mind the bigger your deposit, the cheaper the rate. For every extra 10% you borrow you'll pay around 1% more in interest.