Deciding on the best type of mortgage for you

These days many people may find it increasingly difficult to decide what is best for them when it comes to their mortgage loan, and this partly stems from the fact that the base interest rate has fallen so sharply over recent months, having plummeted from 5 percent in October of last year to just 1.5 percent by January of this year. The current base rate is the lowest in the entire history of the Bank of England, which spans over three hundred years, and many officials have predicted that it will fall further over the coming months and could even plunge to zero.

A great deal has changed in the mortgage market over the past couple of years, and whilst mortgages were relatively easy to come by a couple of years ago, even if you had little or no deposit to put down, these days it can be far more difficult to get a mortgage loan, and even if you can get a mortgage you may find that you have to put down far more by way of a deposit than you may have had to in the past, with lenders demanding ridiculous deposit levels such as 25 percent or even 40 percent of the property value.

Also, whilst lenders were previously clamouring to give out mortgage loans, these days they are severely restricting the number of mortgages that they are offering, and have become far more stringent about who they will lend to, which has in turn resulted in a restriction on the choice of mortgage loans that many consumers can enjoy. Whilst many of the best deals now require borrowers to put down a deposit of at least 40 percent, there are deals on offer where a reasonable rate of interest can be enjoyed for a lower deposit of around 20-25 percent of the property value. However, there are fewer and fewer lenders offering deals on mortgages with deposits of just 10 percent or more, so those with little to no deposit, such as first time buyers, may struggle to get an affordable mortgage.

The recent drops in interest rates mean that some people may find that their mortgage needs have altered, and the type of mortgage that will best suit their needs has changed. Over the past couple of years many people decided to opt for a fixed rate mortgage and this was because the base interest rate had been rising, and many wanted to increase financial stability by ensuring that they made the same fixed repayment on their mortgage each month, so that they could budget more easily and would not have to worry about further interest rate rises and repayment increases.

In the past the fixed rate mortgage has therefore provided an effective tool for those that cannot risk their mortgage repayments fluctuating, and in particular could not cope with rising repayments stemming from the series of base rate rises in 2006 and 2007. However, many of those that took out fixed rate mortgage deals a couple of years ago may now find that the deals are due to come to an end, and many industry officials have said that many of these people could find themselves better off by switching to their lenders’ standard variable rate when the fixed rate deal comes to an end.

The reason for switching to the lender’s standard variable rate mortgage is that the falling interest rates means that some of the rates now being offered on variable rate mortgages by lenders have recently come down by a significant level, and whilst this type of mortgage has never really been touted as the best option by financial advisors, the fall in interest rates has resulted in a chance of opinion in many cases, with the base rate having hit record lows.

However, this said many people may still find that they enjoy more peace of mind by taking on a fixed rate mortgage deal, as they can then be certain of what their repayments will be each month until the fixed rate terms comes to an end. However, whilst some people may find that this financial stability suits them many may fail to enjoy the financial benefits in the event that the base interest rate does continue to fall over the course of this year, as it is expected to do.

Of course, there are other mortgage choices available that could be considered, such as base rate tracker mortgages and offset mortgages, and some may decide to opt for an interest only mortgage to save money on their monthly repayments in the current financial climate. However, with interest rates at such lows and the mortgage market so restricted it is important to do your research and seek financial advice from an expert before taking the plunge.