With more than one million homeowners expecting to see their fixed rate mortgage deals come to an end in the coming year, many may be questioning what deal to choose next.
Following the Bank of England’s decision to hold the Base Rate at 5.25 percent for three consecutive months, average fixed mortgage rates have finally dropped below six percent as market stability somewhat resumes.
From another fixed rate to trackers and offset mortgages, choosing the right deal is “important”, Adrian MacDiarmid, head of mortgages at Barratt Developments has said, “as it can help save you a lot of money.”
Mr MacDiarmid added: “While a fixed-rate mortgage is the most popular option overall, there are a lot of new products available now tailored to specific buyers.”
With a fixed-rate mortgage, repayments remain the same for a set period, usually ranging from two to five, or occasionally up to 10 years.
Mr MacDiarmid said: “This gives you the certainty of knowing what your repayments will be regardless of market interest rates. Fixed-rate mortgages are among the most popular mortgage types, accumulating the most average UK monthly searches. It’s perhaps surprising that 32 percent of homeowners are unfamiliar with this mortgage.”
According to Mr MacDiarmid, the pros and cons of this mortgage type include:
Pros
Cons
When a fixed-rate mortgage ends, people are either switched to their lender’s standard variable rate (SVR) or have the option to remortgage. Opting for a remortgage typically involves being offered a new rate from their current deal, referred to as a Product Transfer.
However, Mr MacDiarmid noted: “If you want to switch before the deal ends, you’ll usually pay an early repayment charge.”
First-time buyer mortgages are designed for people purchasing their first home. According to Mr MacDiarmid, these are often tailored to accommodate this group’s “unique financial circumstances and needs”.
He explained: “Various mortgage products are specifically targeted at first-time buyers, including low-deposit mortgages that offer first-time buyers the potential to secure a property with a lower down payment, and fixed-rate mortgages that offer a stable interest rate for a predetermined period.”
According to Mr MacDiarmid, the pros and cons of this mortgage type include:
Pros
Cons
Offset mortgages allow people to keep their mortgage debt and savings with the same bank or building society. In this arrangement, savings are used to offset and reduce the amount of mortgage interest charged.
Mr MacDiarmid said: “Offset mortgages can potentially help reduce the interest you pay. However, 89 percent of homeowners are unaware of this mortgage type.”
According to Mr MacDiarmid, the pros and cons of this mortgage type include:
Pros
Cons
A tracker mortgage offers an interest rate that “tracks” the Bank of England’s Base Rate, meaning it has the potential to fluctuate. According to Mr MacDiarmid, it generally tends to stay below the rate of a standard variable rate (SVR) mortgage and two in three homeowners are unaware of this mortgage loan.
Mr MacDiarmid said the pros and cons of this mortgage type include:
Pros
Cons
According to Mr MacDiarmid, this is a product designed for mature homeowners that allows them to convert a portion of their home equity into tax-free cash, without the need to sell their home, give up ownership, or make monthly mortgage payments.
He said: “There are almost seven million homes in England headed by someone aged 65 or over. However, 71 percent of UK homeowners are unaware of lifetime mortgages.”
Pros
Cons
Mr MacDiarmid said: “The many options available mean that it is always a good idea to take advice from a suitably qualified and regulated mortgage adviser who will be able to help you find the product best suited to your circumstances.”
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