Buying a home is an incredibly exciting experience. It is a place you can finally call your own. If you have been renting for the last few years, then you will understand the many disadvantages that come with renting property. Renting certainly has more limitations as you are unable to make the home into a space that is truly yours. This means you often cannot paint the walls or hang anything up on the wall as landlords do not want the hassle of fixing it once your tenancy is up.
However, by owning your own home, you have the freedom to create a home that is truly yours, and you can decorate and paint the home as you see fit. This opens up a lot more opportunities for you, and it can help you feel more at home. There are several different types of mortgages that exist, and they offer various different purposes. Choosing the right mortgage is important as you will be investing a lot of money, and you must ensure that it is the right one for you.
There are also equity release lifetime mortgages that allow homeowners who are over 55 to release some of the cash tied up in their home. In this article, we will go over lifetime mortgages, as well as the other conventional mortgages that exist, so that you have more of an understanding. Keep on reading the find out what mortgages there are on offer and how you can see if you are eligible for them.
Table of Contents
The first mortgage we are going to discuss is a fixed-rate mortgage. This is probably one of the most common mortgages on the market. As the name suggests, a fixed-rate mortgage is when the interest rate on your mortgage stays the same for an agreed amount of time. Usually, this is between 2-5 years, and it just means that your interest rate stays at a fixed price, no matter what changes in the housing market.
As with any mortgage, there are pros and cons to a fixed-rate mortgage, but perhaps for first time buyers, the advantages seem to outweigh the disadvantages. With a fixed-rate mortgage, you definitely have a sense of stability and security, as you know that no matter what happens with the housing market, your interest rate stays the same. Considering how volatile the housing market currently is, it seems that a fixed-rate mortgage may be the best option for someone who is looking to buy their first home.
The next type of mortgage we are going to discuss is a tracker mortgage. This mortgage is a type of variable rate mortgage which essentially tracks a base rate. Usually, this base rate is determined by the Bank of England’s base rate, but some tracker mortgages may vary. Other variable mortgages are set by the mortgage lender, which means that the variable rate can vary, whereas a tracker mortgage usually follows the Bank of England’s base rate, so you have a bit more stability.
However, although you may have more stability than other variable mortgages, the base rate of the Bank of England can change, which means the amount you pay for your mortgage can vary per month. This can be difficult, as you do not have a whole lot of stability with your mortgage payments. Although there is a sense of instability with a tracker mortgage, many people find that this type of mortgage works for them, so it is important that you do extensive research so that you know what you’re getting into.
A lifetime mortgage allows homeowners to release a tax-free amount in the form of a loan from their main residence. It involves you releasing some of the money that is tied up into your home, also known as equity. As mentioned previously, all mortgages come with advantages and disadvantages, so it is important that you understand all of the pros and cons before you make a decision. A lifetime mortgage involves you taking out a loan that is secured against your home. It is available to eligible homeowners aged over 55, and there are criteria that you need to fulfil to be eligible.
A lifetime mortgage calculator could help you find out how much could be released if you choose to take one out. You should meet face-to-face with an independent equity release advisor so that you can discuss the most suitable plans in the equity release market.
Once you have owned your home for years and you pass the age of 55, you can use a lifetime mortgage calculator to work out how much cash can be released from your property. Ensure you speak to relevant equity release experts so that you fully understand what this is. For example, an equity release adviser will explain about lifetime mortgages and discuss the product types, as you may be able to receive tax-free funds in a lump sum or in stages via a drawdown. A drawdown is where the homeowner releases equity in amounts over time.
Standard Variable Rate Mortgages
We have spoken a couple of times about different variable rate mortgages available, and now it is time to discuss standard variable rate mortgages. As you may have guessed, standard variable rate mortgages differ in that they are set at the lender’s basic rate of interest. The mortgage lender is in charge of setting the interest rate, and they are also the ones who can choose to change the rate of interest too. This is quite standard for the industry, but you should know about them all the same.
This means that your interest rates and mortgage payments could potentially change each month, depending on what the lender decides to do. So, while you may be settled on certain payments every month, if your lender decides to change the SVR, then you could end up paying more per month. This is definitely a huge disadvantage of standard variable mortgages, so you must ensure that you research mortgage lenders before you invest your money into this type of mortgage. It will also be worth your time to consult others in your life that have this type of mortgage.
The final mortgage we are going to discuss is offset mortgages. Offset mortgages differ significantly from the rest of the mortgages featured in this article, as they are a type of mortgage that is linked to one of your savings accounts. The money that is in your savings is used to lower the total interest that you will be charged per month for your mortgage. It is a way of linking your mortgage with your savings and it can save you some money as your interest rates have been lowered. This is a good idea for people who have a lot of money in savings but do not want to spend the entire savings on a deposit.
If you are someone who is self-employed and has to keep large sums of money in savings accounts, then an offset mortgage would be ideal for you. Having savings proves to the lender that you will be able to afford a mortgage, even if you do not have normal monthly pay checks. However, offset mortgages do come with some disadvantages as if you withdraw a lot of money from your savings, your payments on your mortgage can increase. Additionally, your savings account that is linked to the mortgage does not earn any interest, which is definitely another disadvantage.