What is the right kind of mortgage for you ?

Copyright 2006 Vincent Wilmot



If you need or want a mortgage, then you can easily get a

mortgage that is not the best one for you. Mortgages are often

missold by sellers claiming to be experts. One day they all push

Endowment mortgages, then Repayment mortgages or Low Start

mortgages or Overpayment mortgages or Fixed Rate mortgages or

Offset mortgages - and each type will also have different

interest rates available.



For any one kind of mortgage, lower interest rates are best of

course. But different kinds of mortgage may best suit different

people, though they may not have the same interest rates. For

some a mortgage is the only way they can afford to buy a

property, but for some a mortgage is profitable cheap money

costing maybe 5% net to free-up other money for investing at a

higher return maybe 10% net.



Good mortgage calculators can help you choose the best mortgage

for you, but many or the mortgage calculators available are

little help.



But first let us look at what kind of mortgage may

best suit you ;



Savings and income small. A normal Repayment mortgage should be

best if you can get one for the property that you want and you

can afford the payments. (Some sellers may help on a deposit or

furnishing, or offer Shared Ownership or Homeown schemes.)

Otherwise, if your income is likely to be rising then a Low

Start mortgage might allow you to buy a better property or to

have lower payments.



As an alternative to a low start mortgage,

a young new graduate might reasonably consider a permanently low

payment endowment mortgage linked to a pension, though at the

end of it gambling whether some net lump sum may be collected or

may be owed.



Savings small and income large. A normal Repayment mortgage

should be best if you can get one for the property that you

want. (Some sellers may help on a deposit or furnishing.) An

Overpayment mortgage will be better if you prefer to pay off

your mortgage early, but an Offset mortgage linked to your

current account could help with that more cheaply.



Savings large and income small. A smaller Repayment mortgage may

be best, but if you can invest your money at a better net return

than the mortgage interest rate that you can get then you should

get the biggest Repayment mortgage that your income can

reasonably afford.



Savings and income large. If you can buy the property you want

without a mortgage, then only get a mortgage if you can invest

your money at a better net return than the mortgage interest

rate that you can get - and in that case get the biggest

Repayment mortgage you can afford.



Initial mortgage payments must be affordable for you, leaving

enough of you income for normal bills and expenses. (If your

income is small then a mortgage taking 30% of your income may be

difficult for you, but if your income is larger then 50% of your

income may not be difficult for you.)



Mortgage payments in later years. The actual money cost of a

normal 'variable' mortgage is fixed for the life of a mortgage

IF interest rates do not change, so that the real cost tends to

fall in later years.



BUT if interest rates rise then the money

cost of your mortgage could rise a lot for a year or two and

make it difficult to keep up payments. Many partly 'insure'

against this by taking a slightly dearer mortgage with the first

few years held at a fixed interest rate. And if sickness or

unemployment might make paying a mortgage difficult, then this

can be insured against.



If you want to buy a property as an investment to rent it out,

then you may need a commercial Buy To Let mortgage needing a

deposit of 15% or more unless you can find a seller offering a

deal that helps with that.



But if you are already a landlord

owning multiple properties, then you may be better suited with a

specialist lending arrangement rather than individual mortgages.