Which Mortgage Type Do You Need - What to Know
Having a mortgage can enable you to afford many big-ticket items that are important in your life. They can help you buy a house, a car, or even start a business. The terms can be intimidating, and the process of obtaining one can be daunting, but once you know your way around, you can use the right mortgage to finance and support your lifestyle.
If you want to invest in property or open your store but have never applied for financing before, we can help you navigate the basics of mortgages. You may have heard friends or colleagues discuss interest rates and mortgage payments. These are common across all financing options, but lenders offer different terms and packages to suit different needs.
There are two main types of mortgages available in the UK, but there are tens more variations and iterations under each depending on the financial institution or brokerage you approach. Understanding the basics can start you on the path to finding the right plan for you.
Fixed-Rate Mortgages
Essentially, a fixed-rate mortgage means you pay the same rate on your loan for the entire duration. These terms are typically between two to five years. Rates refer to the interest that you pay on the amount of money you loan. Even if the market improves and interest rates fall, you still have to pay the same amount for the rest of the loan term.
Paying a fixed amount has its benefits. You can have peace of mind that if the market turns and interest rates shoot up, your loan stays the same. It is advantageous to enter into a fixed-rate mortgage if prices are relatively low. You can do a little research on the historical trend of interest rates to see if you are getting a good deal.
On the other hand, if you enter into a loan during a market rally, financing will probably be more expensive. Make sure you consult your mortgage brokerage or your loan officer on what terms are available to you in case you want to opt-out during the loan period or if you are eligible for remortgaging.
Adjustable or Variable Rate Loan
The other major type of financing is variable-rate mortgages. As the name indicates, the interest rate you pay is subject to the market fluctuations. With adjustable rates, you are going to get prices that are slightly below fixed-rate mortgages simply because you are willing to take on a riskier deal. However, the savings you get from the price difference can quickly be erased if rates shoot up.
With variable rates, you need to be prepared with enough cash on hand to pay the increase, so make sure you set aside enough money to weather the changes.
Which one do I need?
Choosing the right mortgage loan for you will largely depend on two factors, namely, your financial capacity, and the prevailing market conditions. Your income and your liabilities determine your financial position. You can choose between one of the two major types of loans depending on how much cash you have saved, how much much of your income can go to making monthly payments, and how much risk you want to take.
The type of mortgage will also depend on the prevailing market conditions. In a market downturn, the government will make it easier and cheaper to obtain mortgages to stimulate spending. If the economy is doing well, it may be better to choose a variable rate that will take advantage if prices drop.
In conclusion
Timing is critical when you apply for a mortgage. Consult an experienced financial adviser or a mortgage brokerage who can help you navigate the ups and downs of the loan market. If you have the time, you can also shop around different lenders to see what options are available. Bear in mind that rates can change every day, so until you are ready to make a decision, all prices are not yet final.
Do you need assistance with financing? We are a
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