Deciding to buy your own house is an exciting experience. On one hand there’s the exhilaration of the independence it brings, along with the sense of maturity of owning your own home – but then comes the reality that you are responsible for maintaining the roof over your head.
Once the initial fizziness of the moment has settled and the mist of enthusiasm has dampened, the importance of making sure the process is understood begins to become apparent. What will happen as the situation progresses? Understanding what your mortgage will look like, and how it will work, becomes a priority.
A driving factor for many homeowners will be cost, and an underlying need to make things as cost effective as possible. There is so much choice, it can sometimes seem overwhelming.
Initially, it is a case of choosing a repayment or interest-only mortgage. With the former option, your monthly payments consist of capital and interest, meaning that the mortgage loan is repaid at the end. Interest only, as the name suggests, is where the payments you make are just the interest on the borrowing, so at the end of the term, the amount borrowed becomes repayable. In this case, people would often have a savings or investment plan in place to cover the debt.
Having decided how the mortgage will be repaid, borrowers then look at the interest rate, and whether to opt for a fixed or variable.
Fixed rate mortgages
Fixed rates generally have a timespan of one to five years, though some lenders also offer 10 years fixed, and with these products the rate does not change for the duration. They are great for those who like to budget and plan exactly what their monthly expenditure will be, and provide a security that the mortgage payments will not change for e specific length of time. It is important to realise though that if rates should fall, with a fixed rate yours would stay the same, and there is usually a penalty for exiting a fixed rate early.
Variable rate mortgages
With a variable rate your monthly payment may fluctuate, though they can often be cheaper than the available fixed rates. There are two main types of variable rate. Tracker mortgages follow the Bank of England base rate. For example, the base rate is currently 0.5%, so if your tracker mortgage was 1.99 above base, you would be paying 2.49%. Tracker products are incredibly flexible, generally with no tie on, meaning that you can change product at any time, they can also allow you to make overpayments to repay your mortgage sooner.
Discount rates work on a similar basis, except they are a percentage below the lender’s standard variable rate, meaning the rate could change at any time, not just as and when the Bank of England changes the rate. Discounts will often also have a tie-in clause, meaning a penalty would be incurred if you wished to exit the product early.
When training to become a mortgage professional, the CeMAP coursework has a section specifically designated to the types of mortgage available. When combined with the rest of the study material, and when the exam is taken, and the accreditation status achieved and awarded, you will be able to meet with customers, and be best placed to assess their needs and recommend the most appropriate mortgage solution.