Whta is the best type of mortgage to get?

Answer 1

Your mortgage will either be a repayment (where some of the capital gets paid off each month) or an interest only. In addition, the interest rate will be fixed, capped or variable.

REPAYMENT vs INTEREST ONLY

Some people are taking interest only loans in order to stretch their affordability. For example, a £100K mortgage at 5.49% over 25 years would cost approx £610 per month repayment, or £456 interest only.

It may be tempting to opt for the interest only, but the main drawbacks are that you are more sensitive to interest rate fluctuations and you don't actually pay off any of the capital.

If you can't afford the monthly repayment on a repayment mortgage, and you're young enough, a better option might be to extend the period of the loan. This way, you are still paying off some of the capital. The same 100K mortgage over 35 years would cost approx £534 per month.

FIXED vs VARIABLE

When asking for advice, people will tell you "basically, it depends on what you think will happen to interest rates". That advice is utter nonsense as no-one can forsee future events.

The easiest answer to this, is to ask yourself the question: "Could I cope if interest rates went up by 2%?". A 100K repayment mortgage over 25 years at 5.49% is £610 per month. If interest rates went up by 2%, then the mortgage would cost £733 per month (an extra £123 per month). If you can't afford that, then a fixed rate is the ONLY option - no if's and but's. Is it worth gambling with the roof over your head?

You could in some cases opt for a capped mortgage which gives you the best of both worlds: protection against rising interest rates, and benefits if interest rates fall. Check to see what the maximum cap is, and whether you could afford the repayments on that.

In addition, pay careful attention to any penalty clauses. AVOID any product which has an extended tie-in (where you are tied to the mortgage for a certain period of time AFTER the fixed rate/special deal ends).

Answer 2

One you can afford! Seriously, it all depends on how long you plan to stay in that home, the part of the country you are in, appreciation, and your discipline.
You can get a 5/1 arm interest only loan. the advantage is your mortgage payment is much lower than a 30 year fixed. You can pay $100.00 extra on your principal each month when you pay your intensest only payment. This will reduce you mortgage faster than a 30 year fixed, and still save you $50,00 - $300.00 per month, depending on the price of the home.
Since all your interest is deductible, you have a good tax write off at the and of the year, and depending on your tax bracket, you could get 30% of the interest you paid back on your tax return.
The 5/1 arm is better than the 3/1 arm (even though it could be .05 higher than a 3/1) because every election year interest rates decline from where they were set. As a result with a 5/1 you will always have an election year you can refinance.
If you plan to stay 2 years, than a 3/1 is the way to go.
Remember, after you live in a home 2 years, you can sell it and pay NO TAXES on the first $250,000 for a single, $500,00 for a married couple. You can do this every two years if you like and never pay a cent in taxes on your profit.

You need to find an honest lender to understand your particular circimstances and plans.
Be sure to examine the truth in lending statement. If the APR is a half point higher than the stated APR, they have added fees to your mortgage that may or may not be ligitimate.

Answer 3

There are four things that are important:

Least of the four: Payment. You need to be able to make that payment every month for as long as you have the loan. But with that said, it's the least important of the four factors. You might reject a loan (say a ten year fixed rate loan) because the payment is too high, but you should never choose a loan based upon the payment.

More important:
The monthly interest charges (balance times rate)
The costs that are sunk into the loan in order to get it
How long you’re likely to keep the loan.

Look at the real rate you are actually being charged, and how long you get to keep that rate. Make certain you don't get suckered on a negative amortization loan with a low "in name only" rate while the real rate is two or three percent higher than rates on sustainable loans like a 5/1 ARM or even a thirty year fixed rate loan.

I go into much more detail here: http://www.searchlightcrusade.net/posts/1138335492.shtml

Answer 4

I would recommend a repayment mortgage although there are a few to chose from and the best one for you depends on your overall financial situation. A repayment mortgage can be fixed at a set rate for three years and after that i would advise remortgaging to get another fixed rate mortgage for another three years and continue in this way with the aim to lower your mortgage payments and/or get your mortgage paid off quicker. Find a good mortgage broker and they will be able to look at your situation more closely and get you a good deal to get you started!

Answer 5

My advice, based on past mistakes, is DO NOT get an endowment mortgage. Get a repayment mortgage where you're actually paying back the amount you've borrowed, and pay it off as quickly as you can afford. It's unbelievable the difference in the final amount you pay back is if you can pay even a little more every month!

Answer 6

An offset mortgage,where all your savings and other money such as current account balance are set against your mortgage borrowing,leaving you with interest to pay on the difference.It also allows you to borrow money at mortgage rate providing there is equity in your home !

Answer 7

Here is free advice on Mortgage Loans.

Answer 8

try to get a repayment mortgage,as time passes the total amount will reduce and you can repay a lump sum off your mortgage as you can afford to do so,you might try to pay a little extra each month you'll be surprised how fast it reduces

Answer 9

Hi,i would go for a repayment one.There is plenty out there with fixed rates make sure there is no penalties