Home is where the mortgage is
Saving up to buy a home will never get you there. The way we get a foot on the property ladder is through a mortgage. But today there are so many options it is not such as straightforward as it could be. Understanding these and what suits you best, means that your investment will truly be as safe as houses.
What are the types of mortgages available on the market?
The two major types of mortgage are repayment and interest-only mortgages. As the name suggests, a repayment mortgage means you repay the amount of the loan and the interest. An interest-only loan, means you pay back just the interest, whilst saving in another product which will help you pay off the capital amount at the end of the time period.
Smart use of mortgage products includes choosing the right interest rate deal to suit you and your financial needs and expected future earnings. The standard variable rate lets you save money by not paying any more than you have to when the base rate goes up or down. It works best if you have a good understanding of how much cash you have after you have paid all your living expenses for the month. The variable rate packages may also come packaged with a cash-back lump sum, very useful to start improving, furnishing, or moving into your new home.
How do the mortgage rates work?
A discounted rate means you start off paying less and then move to another rate at a later date. This can help you get started on your property purchase, especially if it's your first time.
Tracker rates means you can immediately save on your rate, if the index to which your rate is linked changes. A fixed rate is good if you don't want to take a gamble, or want to exactly budget for your repayments. You may also be able to find a capped rate, which is a variable rate which will not rise above a maximum, also useful for budgeting.
Remortgaging is one way in which you can make smart use of your mortgage. As you pay off your original mortgage with another mortgage, you can benefit from switching to the new provider with more favourable terms.
Extra savings can be generated with some of the more innovative mortgage products available from today's providers. These can make your mortgage one of the best investments you ever make. They may allow you to pay more one month and less another, they may let you take a payment holiday. They may even allow you to deposit spare cash and draw this out again later on if needed. You may be able to save in another account and pay less interest on your mortgage correspondingly. Some options may even let you pay off early.
These clever and more flexible options give you back the control of your personal finance. They earn you more money than any savings account you could find. Given that house prices increase faster than value of debt, these mortgage products may be the best investment you ever make.