It can be exciting to shop for and buy your first home. While looking at new home features and comparing neighbourhoods can be fun, new home buyers are often overwhelmed by the financing aspect of buying a home. There are many different types of mortgages available. Fortunately, if you have the knowledge and the aid of an experienced mortgage professional, choosing the right type of mortgage loan should be quite easy.
There are a few different types of mortgages and we are going to take a look at them to make understanding the mortgage process easier:
Standard Variable Rate (SVR) – as one of the variable-rate mortgages, the amount you pay each month could change. If the lender raises SVR (standard variable rate), you need to pay more each month. However, the extra money will be used to pay the higher interest, instead of the principal (original amount you borrowed). This means that you won’t pay off the mortgage any sooner. If you choose an SVR, you need to accept the possibility that the rate may change, and your payment could go up or down. However, because there’s no early repayment charge, it is possible to look for a new mortgage or pay off your mortgage sooner without incurring a penalty. This type of interest rate is not very popular nowadays are they are more expensive than other rates available on the market. This is the rate you generally revert to when your mortgage deal ends.
Fixed Rate Mortgage- a fixed rate mortgage is the simplest type of mortgage rate because for a specific period of time, the interest rate will always stay the same for a certain amount of time. If it’s advertised as ‘three-year fix’ or ‘five-year fix’ for example, it will mean that the interest rate will change after that period ends, and so it’s advisable to review your mortgage when your fixed rate is due to expire (we recommend around 3 months before your deal ends). If you choose a fixed rate mortgage, you will have the peace of mind that your monthly payments will always be the same. However, fixed rate mortgages are typically higher than variable rate mortgages.
Tracker rate mortgage – a tracker rate is another type of variable rate where the interest rate you pay is set at a certain amount above the Bank of England (BOE) base rate (some lenders use the Libor rate), for example 1% above the BOE rate. If the BOE change the base rate of lending either up or down, then your interest rate and therefore payment will move up or down in line with it. These tend to be slightly cheaper than fixed rates but could be become more expensive should interest rates rise. Trackers can either be short term (i.e 2 years) in could be “term” trackers where the deal runs for the entire length of the mortgage.
Discounted rate mortgage – again this is a variable rate mortgage where the lender gives you a discount off there SVR rate, for example 1%, for a certain amount of time (i.e.2 years). This means that should the lender change their SVR rate either up or down, then your interest rate and therefore payment will move up or down in line with it.
Should I Consider Using A Mortgage Broker?
Even if it isn’t your first time buying a home, finding the perfect mortgage deal can be challenging. You need to shop around lenders, compile accurate information about your finances, and sort through mountains of paperwork. Attempting to buy a new home without adequate knowledge of today’s mortgage industry can be risky and you could lose a lot of money by choosing a less than ideal mortgage deal, or paying lender fees that you may not need to pay.
What should a new home buyer do when faced with today’s significantly more complex mortgage landscape? The first step is to contact a mortgage broker in Cardiff. Using a mortgage broker can help ensure that you get the best mortgage deal and that the home buying process is a lot less stressful for you, as a good mortgage broker wont only help arrange the mortgage for you, but will also help guide you through the house buying process whilst making you aware of any potential pitfalls in the house buying process.
With that in mind, we are going to take a look at some reasons why you should consider using a mortgage broker:
Less Effort- using a good mortgage broker’s help to buy your first home can save a lot of the usual legwork. The broker can contact multiple lenders to find the best deal for you. Taking a mortgage loan offer from major bank can be the most obvious path. Although this may work out fine in most cases, you could miss out on some better alternatives from smaller lenders.
Save Time- you won’t need to spend much time looking for the best loan possible when using a mortgage broker. It can be time consuming to compare all the local lenders. Mortgage brokers have the most updated information from all local lenders, and they can help find you the best deal available.
Better Loan Is Assured- a mortgage broker in Cardiff has the experience to find the best mortgage deals for their clients individual circumstances.
Access To Special Rates- reputable mortgage brokers maintain good relationships with lenders, and they can some access special rates. This could help save homebuyers a lot of money.
Find The Lowest Interest Rates- mortgage rates change regularly based on various factors. If a mortgage broker could reduce the mortgage rate by just 0.1%, you will save £4,700, if you buy a £300,000 home with £50,000 deposit and 30-year loan term.
Current Base Rate In The UK
What is the current base rate in the UK? Currently, the Bank of England base rate is 0.1%. This has dropped from 0.25% to 0.1% on 19 March 2020 in an effort to help ease the economic shock of the pandemic. The bank reduced the base rate from 0.75% to 0.25% 1 week earlier on 11 March 2020.
Mortgage Rates In 2020 And Today
When setting mortgage rates, lenders typically factor in a number of considerations including risk of lending. As such, cuts in the base rate in the UK don’t always lead to a decrease in some mortgage rates. As an example, the average two year fixed mortgage rate is higher year-on-year, increasing from 2.44% on 1 December 2019 to 2.49% on 1 December 2020. however, during July the average rate on a two and five year fixed mortgage fell to 1.99% and 2.25% respectively. And, the average five year fixed mortgage rate has decreased as well, dropping from 2.74% on 1 December 2019 to 2.69% on 1 December 2020.
Contact RWB Wealth
To learn more about mortgages, contact RWB Wealth today and speak with a mortgage expert who can answer any questions you might have.
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