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Mortgage
A house is the single biggest purchase that most people
will make during their lives, and while the lucky few will be able to
buy a property outright, most of us will require additional funding to
finance the purchase, which is where a mortgage comes in. A mortgage is
a specialised form of secured loan, with the house that you are purchasing
acting as the security for the amount being borrowed, in this way the
lenders are able to loan a large sum of money without exposing themselves
to a large risk should the borrower be unable to meet the repayment.
There is a wide and often bewildering choice in the UK mortgage field,
with a number of lenders each offering many different types of mortgage,
from fixed rate to variable, capped rate to repayment mortgages –
knowing which one to choose can be difficult. Hopefully the information
provided here and in the other pages of this site will help you to better
understand the mortgage options available to you, and give you a clearer
idea of what is on offer in the UK mortgage arena.
When looking at what type of mortgage to opt for, there are a number of
factors that you should to take into account. The first thing that you
will need to decide is how comfortable you are with risk, any mortgage
presents some kind of risk – as the property is secured against
the loan you could stand to loose it should you be unable to meet the
mortgage repayments, thankfully this is a worst case scenario that the
majority of people will never face. The more common risk that you will
need to consider is the effects of interest rate changes, as this could
influence the type of mortgage that you choose.
Different types of mortgage are affected in different ways by the fluctuations
in the Bank of England base rate, most mortgages will ‘track’
this base rate with their interest rates remaining a set amount above
the base rate. This is good news for the borrower when the interest rates
fall, but if they rise so to will your monthly repayments and the cost
of your mortgage.
Fixed rate and capped mortgages deal with these base rate fluctuations
differently, a fixed rate mortgage is just that – fixed. With this
type of mortgage the amount of interest that you pay will remain the same
not matter what the base rate does, making a fixed rate mortgage a good
choice for those who are risk averse and like to know up front exactly
what their mortgage will cost them. A capped rate mortgage is similar,
except it has only the upper amount of interest fixed, the interest rate
is free to fall and rise, but it can never exceed the agreed upper limit.
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