Understanding Mortgage Types
When you are choosing any kind of mortgage, it is important to understand the different types that are on offer, as some may well be more suited to your needs than others. Mortgages are very personal things, so the mortgage product that works for a family member or friend may not work for you. When you are looking for a bad credit mortgage, you will find that your choices are narrowed down slightly, but it is still important to shop around as much as you can to make sure you get the best deal possible.
The most commonly offered mortgage prodcuts are detailed below, however this is purely a brief description of the the products and is by no means an exhaustive breakdown, and should not intended to be used as financial advice or guidance, rather for basic information and understanding of terminology used.
Variable Rate mortgages follow market rates and therefore you monthly repayments can go up or down, depending on market activity. These kinds of mortgages generally have lower interest rates that fixed rate mortgages as they can be unpredictable. Many people choose to have a variable rate mortgage as it means they are not committing to one lender as you would have to do with a fixed rate. They are also less likely to come with early redemption or over-payment penalties. The downside to this kind of mortgage is that if interest rates rise, so will your monthly repayment so they are not suited to those on a budget as you have no fixed monthly expenditure you can work from.
Fixed Rate Mortgages are popular as they are simple and easy to understand and budget with. This makes them the perfect first time buyers mortgage, as well as ideal for anyone who wants to have a set expenditure budget in place. While fixed rate mortgages aren’t the cheapest on the market, they offer peace of mind and security for the period you choose to fix it for, which for many people is important. The downside to fixed rates is that you have to commit to one lender for a set period of time, and there may well be penalties associated with early repayments, overpayments and in some cases moving house, so these are areas to be sure you are clear on when you are looking at the products on offer.
Tracker Mortgages are another form of variable rate, however they follow the European Central Bank base rate as it changes. Variable rate mortgage lenders can choose not to mirror any changes in the base rate should they wish. Tracker mortgages are set at a percentage above the European Central Bank’s base rate, and this percentage will stay in place for the duration of the mortgage, so unlike variable rate mortgages you will know what your rate is as soon as an interest rise or drop is announced. Tracker mortgages allow you to make monthly overpayments lump sum payments without incurring any penalties. As with variable rates, this kind of mortgage does not work well for those that want a set monthly payment that will not change.
Because you will be applying for an adverse credit mortgage, you may find that the rates being offered to you are not as good as those advertised on the high street, and it may even be the case that one or more of the above mortgage products is not available to you because of your circumstances. Choosing a bad credit mortgage is something that should be done with care, and you don’t want to lock yourself into a high interest rate for a long period of time, as your regular mortgage repayments will go a long way to building a good credit rating allowing you to avail of better rates a couple of years down the line.
