Mortgages have been around for centuries and without one, acquiring a home would be impossible for most people. The average price of a house in Scotland has risen to almost £200,000 (it has almost doubled in the past two decades), therefore getting a mortgage is one of the biggest financial commitments you’re ever likely to make. Choosing the right mortgage could save you thousands of pounds so it is important to always speak to a mortgage adviser and understand what deal is right for you.
There are various different types of mortgages and there are numerous factors that might impact whether you will be eligible for the particular type of mortgage, such as the deposit you have, your age, whether this is your only property, your current financial situation etc.
Repayment mortgages
With a capital repayment mortgage, your monthly repayments are calculated so you’ll have repaid all the debt and the interest over the term you agree (e.g. 25 years), meaning you will own your house outright and have nothing more to pay.
Interest-only mortgages
These types or mortgages were very popular with first time buyers, however it is now quite difficult to get an interest-only mortgage from a lender. With an interest-only mortgage you just pay the interest during the term, therefore at the end of 25 years you will still owe a huge amount for the property and have to repay this to the lender in one lump sum.
With a repayment mortgage, although you pay more each month (as you’re actually paying off some of your debt every month), it means you will owe nothing at the end of your mortgage term.
Once you have decided on your repayment strategy, you need to think about the type of mortgage you want – fixed or variable:
Fixed rate
A fixed rate mortgage allows you to fix the deal for a certain period of time. This means that, regardless of what happens to interest rates, your repayments are fixed for the length of the deal. This, of course, has pros and cons – it means you know exactly what your mortgage will cost. However if interest rates fall you won’t see your payments drop and there is usually a penalty for getting out of the agreement early if you do decide to change to a variable rate.
Variable
Your payments will go up and down in a variable rate mortgage, depending on inflation and changes to the UK economy. A variable mortgage has advantages but it is more complicated than a fixed rate mortgage especially as there are different types of variable-rate mortgages: tracker mortgages, standard variable mortgages and discount mortgages.
Mortgage deals tend to last from 2 – 10 years. With new deals coming on the market all the time, homeowners should always review their mortgage options when their current deal ends, and, if not they risk losing money. At McDougall McQueen we work with a number of independent mortgage advisors who can find the best deal for your individual situation, so please get in touch for more information.