Which Home Mortgage for First Time Buyers?
Low Mortgage Interest Rates Reduce Monthly Repayments
Dec 13, 2008
The home mortgage market can appear to be something of a minefield for first time buyers. With discount, fixed rate, tracker and cash back mortgages, it can be difficult to know how to proceed. This article will provide some helpful guidance on the different loan types available.
Mortgage Interest Rates and First Time Buyers
Other than raising a house deposit, affording the monthly repayments is the other main consideration. Keeping payments down during the first 12 months is a top priority. However, it is also important to be able to cope with any increases when an introductory rate comes to an end.
Fixed Rate Mortgage
Fixed rate mortgages provide certainty for the first time buyer which can be invaluable when on a limited income. If the Bank of England increases base rates, the borrower won't be adversely affected. The amount paid each month will be the same each month until the end of the mortgage deal.
Discount Mortgages
Discount mortgages work by offering the borrower an interest rate that is a fixed amount below the Standard Variable Rate (SVR). The longer the discount rate lasts the less it will be as lenders work on a tight budget as well.
Many first time buyers choose discounted deals that are front-loaded - the discount is provided during the first 12 months. This is of assistance to young professionals who may be trying to get qualifications that will boost earnings considerably in later years.
Cash Back Mortgages
These loans offer borrowers a sum of money in return for a longer tie-in period and a higher rate of APR. This extra cash helps first time buyers pay for new possessions for their home. It is just like getting an extra loan, but without it being as apparent.
Bank Base Rate Tracker Mortgages
These work by tracking the rate of interest set by the Bank of England. The rate won't be identical to that rate as a margin will exist. This is the difference between the bank base rate and the rate of interest charged and is the banks profit margin.
Whilst tracker mortgages allow borrowers to benefit from rate cuts, they can be volatile as they also track rate increases. They are a popular, but can make it difficult for first time buyers to budget, especially in the formative years.
There is no right or wrong answer regarding which loan should be chosen. However, it is advisable to use an online home mortgage comparison service to identify the most favourable rates on the market so monthly repayments can be controlled during that difficult first year.
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