The Pros and Cons of Different Mortgage Types
It's easy to be confused by the various mortgages on offer and wonder which one is best for you. Each one does indeed have their advantages and disadvantages depending on your individual circumstances. It's why an individual financial advisor will often help you make the right choice. Here's a quick guide to some of the pros and cons of each mortgage type generally on offer
Fixed-rate mortgage – With a fixed-rate mortgage, the interest rate payments will not go up or down but always stay the same for a fixed period of time.
Advantages – You always know how much you will have to pay. Regardless of what the interest rates do outside of your mortgage, your payments stay the same.
Disadvantages – If interest rates fall, then you could find you're paying more than you would be if you had a standard variable-rate mortgage. Most mortgage companies charge significant penalties if you want out of the mortgage early.
Tracker mortgage – This mortgage type follows the base rate set by the Bank of England although at a set percentage above that rate.
Advantages – Interest rates with a tracker mortgage can be lower than those offered with a fixed-rate mortgage. In addition, if interest rates go down, so does your mortgage repayments.
Disadvantages – If the base rate from the Bank of England increases, so do your payments. There's no limit as to how much they may rise.
Discount mortgage – This mortgage type is linked to the lender's own standard variable rate (SVR).
Advantages – The rates given are normally lower than fixed-rate mortgages plus if the rate goes down, so do your mortgage repayments.
Disadvantages – Lenders often change their SVR without notice, potentially putting your mortgage payments up unexpectedly.
Offset mortgage – with offset mortgages, the loan offsets any savings you have against the mortgage you have.
Advantages – The loan's structure means you can pay off your mortgage quicker as well as reap tax benefits.
Disadvantages – Rates can often by higher than those given with a fixed-rate mortgage. If you don;t have a lot of savings, the benefits may be minimal.