How To Choose The Best Type Of Mortgage
Fixed Or Variable Rate
This is the main decision you will have to make when trying to choose a mortgage, whether to go with a fixed or variable interest rate.
If you go for a fixed rate the amount of interest you pay will remain the same for the whole duration of the mortgage. This is usually just above the base rate when you take out the mortgage. This is considered to be the 'safe' option because you will know exactly how much you will have to pay every month over the lifetime of the mortgage. This allows you to accurately budget for your mortgage payments in the long term.
A variable rate mortgage, as the name suggests, changes depending on the current economic situation. A typical variable mortgage will charge interest at around 0.5% above the base rate. If there is a period of inflation you could end up paying significantly more interest than if you had taken a fixed rate mortgage. Conversely, if the base interest rate falls you could save a serious amount of money.
Choosing between these two types of mortgage is difficult but basically it comes down to your attitude towards risk. If you are the worrying type it may be best for you to go with a fixed rate so you know exactly how much you will have to pay each month. However if you are not adverse to a little risk or you believe that interest rates are going to fall over the long term then you should opt for a variable rate mortgage.
The Term Of The Mortgage
This means how long you are going to be paying off the mortgage for. If you pick a shorter term mortgage, say 5 years, your monthly payments will be high but the total amount of interest you pay will be quite low. If you go for a longer term mortgage of 25 years then the monthly payments will be much lower but you will end up paying significantly more interest in total.
The deciding factor here is really how much can you afford to pay. The shorter the term of your mortgage the less interest you will have to pay. Work out exactly how much you can afford to pay each month and go for the mortgage with the shortest term that you can.
Buying property is usually the most significant financial investment you will make in your whole life. You should spend a good amount of time trying to find the best deal you can on you mortgage. After all you could be paying it every month for the next 25 years!
Related Tags: mortgage, best, variable, fixed, type
Richard Heaney is the webmaster at Personal Financial Information. Find out useful information on a variety of different areas including mortgages, credit cards and insurance.
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