Obtaining a mortgage in the UK can be a confusing process. You will have many mortgages to choose from including fixed rate, variable, capped, self certification and interest only.
The type of mortgage will depend on your current financial and credit situation.
The most common type of mortgage is variable. The repayment schedule and amount will be set by the lending institution. It is best to shop around for the best rates.
They are the most competitive and can be more beneficial to the customer. However, when a lender raises their base rates, the borrowers payments will increase. This can cause a burden for some borrowers.
Fixed Rate Mortgage
A great alternative is a fixed rate mortgage. With a fixed rate mortgage, your payments will stay the same for several years.
The length of time varies from lender to lender.
These mortgages can be beneficial in times of rising base rates. If you are living on a budget, fixed rate mortgages can help with planning.
However, in times of falling base rates, you will not be able to benefit. Premiums may also be higher with these mortgages.
A capped mortgage combines the benefits of both variable and fixed rate mortgages.
If base rates rise, your payments will not go over a pre-determined amount. On the flip side, when base rates fall you can reap the rewards.
Premiums are common practice when obtaining this type of mortgage.
If you are self-employed or have difficulty showing proof of income, a self certification mortgage is the way to go.
You will need to provide bank statements to the lender. This shows them that you have income coming in. You will be required to put down a larger down payment and base rates are higher.
For those will a limited income, a interest only mortgage is a popular option.
These loans allow the borrower to pay only the interest for a fixed time period. The amount you repay can be significantly higher.
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