Choosing the Right Mortgage for You

There’s been a lot in the news recently about the pitfalls of choosing an interest only mortgage. Statistics released by This is Money and The Guardian have shown that defaults on interest only mortgages are at an all time high. This is of particular worry with regards to the vast number of older people (three quarters of homeowners aged over 60) who have interest only mortgages.

With this in mind, it’s never been so important to choose exactly the right mortgage for you. This includes finding the right financing, which may involve asking family or friends to help you out. Sometimes, young buyers are able to purchase their first home by asking their parents to look into the potential benefits of secured homeowner loans. In the meantime, here are some of the mortgage options available on the market today.

Interest Only Mortgages

The benefit of interest only mortgages is that they give potential homeowners the opportunity to get onto the housing market without the need to meet potentially costly monthly capital repayments. The terms of an interest only mortgage agreement will stipulate that the repayments will cover payments of interest only, until the end of the agreed upon term when the mortgage holder will be required to pay off the outstanding balance.

Fixed Rate Mortgages

A fixed rate mortgage is often thought to be the safest type of mortgage around. Fixed rate means that the home owner will pay the same amount every month until the end of the mortgage term, although many fixed rates often last for a certain number of years, whereupon the lender’s standard lending rate will apply. For the period of the fixed term, the interest rate remains the same throughout. Fixed rate mortgages usually require a higher initial deposit and can mean higher payments throughout the fixed rate term, depending on prevailing interest rates, however they contain no nasty financial surprises.

Variable Rate Mortgages

Also known as tracker or adjustable rate mortgages, variable rate mortgages are generally linked to the lender’s prevailing lending rate. This means the amount of interest you would pay on this kind of mortgages is not fixed, and your monthly payments may go up or down, depending on the underlying rate.

Graduated Payment Mortgages

These types of mortgages have been growing in popularity, as they appeal to young professionals who expect their income to increase over time. Monthly payments increase over time too and this makes it an attractive option for those who may not have the capital to afford large monthly repayments from the outset. However, with this type of mortgage there are inherent risks, such as the possibility of income not increasing or, worse, decreasing, as mortgage payments rise.

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