Arranging your mortgage

There are three different types of mortgages rates to choose from.

A Fixed Rate – As a first time buyer this is the most secure interest rate, irrelevant of whether the Bank of England base rate is going up or down as your interest rate will remain the same. It’s fixed for a period of time.

A Tracker Rate – This follows the Bank of England base rate so there will be times where a tracker rate can be beneficial but times such as now, where the base rate is increasing, you will find your monthly payments increasing each time this happens. This is a rate for those who are willing to take more of a risk and have disposable income to mitigate against the risk of payments increasing

A Variable Rate – This rate is normally set by the mortgage lender so doesn’t necessarily track the Bank of England base rate. Again it is always at risk of changing which puts your payments at risk.

What a first time buyer should consider is the costs of running a property can be unexpected so having a fixed rate can allow you to budget each month without worrying about what is happening in the markets.

But what is the downside of a fixed rate?

1) They can be priced higher although, at the moment, there appears to be very little difference between a fixed rate and a variable/tracker rate.

2) They could come with early repayment charges if you wanted to repay your mortgage during that fixed rate period.

3) If interest rates did drop you would not be able to take advantage, whilst you were on your fixed rate, unless you paid the early repayment charge.

Mortgage terms could vary anything from 5 years to 40 years. Taking a longer mortgage term will reduce the monthly cost however it does mean you pay more interest ultimately on your mortgage.

Things to consider when looking at the mortgage term;

1) What age do you want the mortgage to be repaid by? Most people don’t want to take a mortgage into retirement and are keen to have it repaid prior to retirement. Or, you might want to retire early and pay more over a shorter term.

2) How much do you want your monthly payments to be? Always have a budget in mind and then set the term around this. You don’t want to be stretching yourself too much on your mortgage and then you can’t enjoy your new property but you also don’t want to be paying more interest than you need to.

Your Mortgage Advisor will discuss all of this in much more detail.

This is a common question we get asked at Metro Finance and it’s such a beneficial thing if you can afford to make over-payments. Ultimately if you can make overpayments on your mortgage, you will bring the balance of your mortgage down decreasing either the monthly payments or the term of the mortgage. This will mean you pay less interest.

For example, if you have a mortgage of £200,000 over 30 years and you could afford to pay an extra £100 each month you could end up reducing your mortgage term by approx 5 years.

Similarly, if you had a mortgage of £100000 over 25 years and paid an additional £75 per month you could also end up reducing the term by approximately 5 years.

There are many factors involved in this, such as the mortgage interest rate you are on, so it’s something to discuss on an individual level with your mortgage advisor.

Many lenders allow overpayments of up to 10% per year of your mortgage balance but again check this with your advisor before you pay anything to make sure you don’t get any charges.