Is Your Mortgage Right For You?

Have you ever considered refinancing your home or changing up your mortgage? Often times, people are continuing on with their current mortgage month after month, year after year, not even knowing there are money-saving options available to them. If nothing else, this article will at least make you aware that there are options out there for you and push you to start considering what options are available to you.

Fixed rate mortgage

A fixed rate mortgage means the interest you are accruing on the amount you borrowed from the bank is set for the length of the agreement. Five years is a standard length of fixed rate mortgages.

Advantages

Fixed rate mortgages are super helpful for budgeting. You know exactly how much you’ll be paying every month down to the cent.

Disadvantages

You’re limiting your options by locking yourself into a five year commitment. Breaking the mortgage will cost you thousand of dollars, so if interests rates drop during that period, you can’t take advantage of them since you’re locked into your agreement.

Who fixed rate mortgages are good for

People who prefer stability to gambling on rising and falling rates. People who are on strict budgets and need to know exactly how much their mortgage will be every month.

Tracker mortgage

Tracker mortgages are linked to a standardized amount set by your government’s financial institution. In England for example, your mortgage will stay the same as the Bank of England’s base rate.

Advantages

Tracker rates are generally lower than fixed rates. Although they aren’t fixed, they’re still easy to understand since their tied to one entities published rates (i.e. no calculation involved).

Disadvantages

You have less stability than you do with fixed rate mortgages. Your rates might be lower than someone in a fixed rate, but they also have an equal chance of being higher, and you’ll need to make sure you could still afford your mortgage if that happens.

Who tracker mortgages are good for

People who have a little financial flexibility and can afford a potentially increased mortgage rate. People who like knowing they aren’t being ripped off as their rate is tied down to the highest banking institution in the country.

Discount mortgage

Discount mortgages are variables rates like tracker mortgages, but the rates here are linked to private lenders who set standard variable rates (SVR) instead of the base rate provided by the government financial entity.

Advantages

Same advantages as tracker mortgages — the rates tend to be lower than fixed rate mortgages on average.

Disadvantage

The way the rates are set and altered by the private lender aren’t entirely transparent. The lender also has the right to change their rates at any time. Your SVR could theoretically go up even though the government’s base rate is staying constant.

Who discount mortgage are good for

Bargain shoppers. You could find the cheapest rates with discount mortgages, even cheaper than the base rate of the Bank of England. You would also need to be someone who doesn’t mind fluctuating mortgage payments and doesn’t mind not knowing why they’re being charged the rate they are paying.

Offset mortgage

Offset mortgages are the most complicated of the bunch. Rather than earning interest on your savings, that money is set against your mortgage so you pay less interest on that debt. For example, say you have a $100,000 USD mortgage and $20,000 in savings, you would only be charged interest on $80,000 of the mortgage. However, your monthly mortgage repayments will be calculated as if the debt was $100,000. Thus, you end up paying more than you need off your mortgage each month, but you clear your mortgage off more quickly and save yourself thousands of dollars in interest in the long run.

Advantages

Offset mortgages allow you to knock years off your mortgage and save you thousands of dollars in interest over the lifetime of your mortgage.

Disadvantages

The interest rates on offset mortgages are usually higher than those on standard mortgage products.

Who offset mortgages mortgages are good for

People who have a large amount in savings, which will enable them to offset more of their mortgage. People who have the financial stability at the time of signing up for their mortgage to afford higher than needed payments. People who are willing to pay a little more now in order to be done with their mortgage sooner 20 or so years from now.

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