Your circumstances and priorities will determine which one is right for you.
If you're on a fixed salary then a fixed monthly payment might be best; while if you receive a basic salary plus large bonuses, you may prefer greater payment flexibility.
You can also repay your mortgage in different ways - repayment, interest-only or a combination of both. As each person's circumstances are different, so is each solution. But don't worry – we've got them all!
With fixed-rate mortgages, you pay the same interest rate for a set period of time, regardless of interest rate changes elsewhere. These can help provide stability of payments and some security.
There are three main types of variable-rate mortgage: tracker mortgages and discount mortgages.
STANDARD VARIABLE MORTGAGES - Each lender has its own standard variable rate (SVR) that it can set at whatever level it wants – meaning that it's not directly linked to the Bank of England base rate. This is higher than most mortgage deals currently on the market, so if you're currently on an SVR, it's worth shopping around for a new mortgage. If you're still in the initial deal period of your mortgage, make a note of when it's due to end, and consider remortgaging at that point to avoid being moved on to your lender's SVR and paying more than you need to.
TRACKER MORTGAGES - With a tracker mortgage, your interest rate 'tracks' the Bank of England base rate for either a set period of time such as two years or sometimes for the life fo the mortgage term.
DISCOUNT MORTGAGES - With a discount mortgage, you pay the lender's standard variable rate, with a fixed amount discounted. For example, if your lender's standard variable rate was 4% and your mortgage came with a 1.5% discount, you'd pay 2.5%. Discounted deals can be ‘stepped’; for example, you might take out a three-year deal but pay one rate for six months and then a higher rate for the remaining two-and-a-half years. Some variable rates have a 'collar' – a rate below which they can’t fall – or are capped at a rate that they can’t go above. Make sure to look out for these features when choosing your deal to ensure you understand what you're signing up to.
With an interest-only mortgage, you just pay interest on your mortgage, while with a repayment mortgage, you also pay off the the money you borrowed. Interest-only mortgage repayments will be cheaper, but you will not have paid off any of the capital at the end of your mortgage term. It is very unusual to get an interest-only mortgage in the current mortgage market.
Flexible mortgages let you over and underpay, take payment holidays and make lump-sum withdrawals. This means you could pay your mortgage off early and save on interest. You don't normally have to have a special mortgage to overpay, though; many 'normal' deals will also allow you to pay off extra, up to a certain amount – typically up to 10% each year. Other types of flexible mortgages include offset mortgages, where your savings are used to offset the amount of your mortgage you pay interest on each month.
Some mortgage deals give you cash back when you take them out. But while the costs of moving can make a wad of cash sound extremely appealing, these deals aren't always the cheapest once you've factored in fees and interest. Make sure you take the total cost into account before choosing a deal.
IF YOU ARE EXPERIENCING FINANCIAL DIFFICULTY AND STRUGGLING TO MAKE PAYMENTS, THEN YOU CAN CONTACT YOUR LENDER WHO MAY BE ABLE TO HELP, TAKING ACCOUNT OF YOUR INDIVIDUAL CIRCUMSTANCES.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE