Helping You Make the Right Choice
If you are trying to get on the property ladder for the first time, one of the biggest decisions you will have to make is the type of mortgage you choose. The two most common options are fixed-rate and variable-rate mortgages. Here’s everything you need to know about them, along with how a mortgage broker can be invaluable in helping individuals to choose the right first time buyer mortgages.
What is a Fixed-Rate Mortgage?
A fixed-rate mortgage sees the interest rate remain the same for an agreed period, typically between two and five years, although longer terms can sometimes be available. This means that your monthly repayments will stay the same during this period, regardless of any changes in the Bank of England’s base rate or any other market conditions.
Advantages
You know exactly how much you need to pay each month, which can make budgeting easier.If interest rates rise during your fixed period, you won’t be affected.
Disadvantages
Fixed-rate mortgages can start with higher interest rates. This is because you’re paying for the security of knowing your repayments won’t change.
If you want to pay off your mortgage early or switch to a different deal before the end of the fixed term, you may face charges.
What is a Variable-Rate Mortgage?
Variable-rate mortgages have interest rates that can fluctuate over time. There are several types of variable-rate mortgages, but the most common are tracker and standard variable rate (SVR) mortgages. Tracker mortgages follow the Bank of England’s base rate. If the base rate rises or falls, your interest rate will move accordingly. SVR mortgages, on the other hand, are set by your lender and can go up or down at their discretion, regardless of the Bank of England’s base rate.
Advantages
Variable-rate mortgages usually start with lower rates than fixed-rate deals, which can mean cheaper monthly payments initially.
If interest rates fall, your mortgage payments could decrease too.
Disadvantages
Your monthly payments could increase if interest rates rise, making it harder to budget in the long term.
If interest rates rise sharply, your repayments will also increase quickly.
Which Option is Best for First-Time Buyers?
Choosing between these two kinds of mortgages is an entirely personal decision. If you are someone who values certainty, then a fixed-rate mortgage might be better for you. If you are working with a tight budget or simply want to know exactly what your repayments will be each month, it will give you peace of mind.
However, if you are comfortable with some risk and really like the idea of potentially enjoying lower repayments, a tracker mortgage could be a great choice. As long as you are sure you can afford the repayments if rates go up, this kind of mortgage has so much to offer.
The Importance of Working with a Mortgage Broker
For first-time buyers, trying to choose a mortgage can be overwhelming. This is where a mortgage broker becomes invaluable. They have access to a wide range of mortgage products from different lenders and will take a look at your personal circumstances and help you understand which mortgage type is best for you.
What Next?
Both fixed-rate and variable-rate mortgages have their merits, and working with a mortgage broker will help you choose a deal that’s perfect for you.
