Choosing the right mortgage for you
A mortgage can last for a long time, so it’s important that you choose one that is right for you. You'll need to decide such things as the type of loan, how long you want it for and what type of product would be suitable for you. The following section sets out the different options available to you.
- Fixed vs. tracker rate products
- Repayment vs. interest only
- Fee vs. no fee
- Mortgage term
- Payment date
Fixed vs. tracker rate products
The rate of interest you pay every month on your mortgage will depend on the mortgage product you have.
Fixed rate
This fixes your interest rate for a specified period of time and won’t change until an agreed date.
Pros - You'll enjoy certainty and peace of mind. You know your interest rate won't change during the fixed rate period, meaning that even if interest rates increase, during that period your rate won’t be affected.
Cons - Rates are usually higher than on tracker products. And if interest rates fall, you won’t see your payments drop with them during the fixed rate period. If you wanted to repay your mortgage or switch to another mortgage deal during the fixed rate period you'll probably have to pay an Early Repayment Charge.
Tracker rate
Typically this moves in line with the Bank of England bank rate. So it will be the same as, or a percentage above or below the bank rate, until an agreed date. So the tracker rate you pay can go up or down.
Pros - Whenever the Bank of England bank rate falls, you will benefit from the same reduction in your rate unless this would take the rate below a minimum rate that you may have on your mortgage product. In which case, your rate would stay the same until the Bank of England bank rate increases again. Please refer to your mortgage offer for details of any minimum rate that may apply to your product.
Cons - If the Bank of England bank rate rises, your payments go up with it. In some cases you may have to pay an Early Repayment Charge if you want to repay your mortgage or switch to another mortgage deal during the tracker rate period.
Repayment vs. interest only
There are three different ways to repay your loan. These are repayment, interest only or a combination of repayment and interest only.
Repayment – Every month your payments go towards reducing the amount you owe as well as paying off the interest charges. This means that each month you are paying off a small part of your loan. When we send your annual statement, you will be able to see your loan getting smaller. However, in the early years your monthly payments will mainly go towards paying off the interest, so the amount you owe won’t go down much at the start.
Interest-only – Your monthly payments pay only the interest charges on your loan – you don’t pay off any of the loan amount. This means your monthly payments will be less than if you had a repayment mortgage. However, the total cost of an interest-only mortgage will be higher because you will be paying interest on the full loan amount throughout the mortgage term.
With an interest-only mortgage you will need to know from the start how you are going to find a lump sum to repay the loan at the end of the mortgage.
When you apply, we will ask you to show us evidence of your repayment plan(s) that should provide enough money to repay the full loan amount at the end of the mortgage term.
- We are not providing advice on your repayment plan(s) or making any guarantees that your plan(s) will be sufficient to repay the outstanding balance (capital) at the end of the mortgage term.
- You should review your plan(s) regularly during the term of the mortgage to make sure it is on track to repay the outstanding balance.
- Periodically, we will ask you to provide evidence of your repayment plan(s). If you are unable to satisfy us that it remains on track to repay your loan, we may ask you to transfer some or all of your mortgage onto a capital and repayment basis.
- Please remember it is your responsibility to ensure you have sufficient funds to repay your outstanding balance at the end of the term. If you are unable to do so, your home may be repossessed to repay the outstanding balance
Combination of repayment and interest-only mortgages – If you wish, you can choose to split your mortgage between a repayment and an interest-only mortgage. This means that at the end of the term you will still have an amount of the mortgage to pay off, which you will need to do using a lump sum. So, just as with an interest-only mortgage, you will need to make sure you have a plan to repay this amount at the end of the mortgage term.
We will only allow you to have any part of your mortgage interest-only if the amount of loan is less than 75% of the valuation of the property. Just note that these limits are subject to change but were correct at time of printing.
We’re here to help and take you through all the mortgage options available. However, Halifax can’t offer advice regarding repayment plans. So for this you should talk to an independent financial adviser.
It’s important to choose the mortgage that is right for you. We’re here to help and talk you through all the options available. Simply pop in to one of our branches, call us on 08458 50 37 05 and speak to a mortgage specialist, or use our call back form and one of our mortgage specialists will call you back.
Most mortgages come with a mortgage product fee attached. As a rule of thumb, you get a lower initial mortgage rate in return for paying a higher fee. Or, alternatively, a lower fee (and in some circumstances, no fee) for a higher initial mortgage rate. If you do have to pay a product fee, it could be added to your new mortgage. You can then either:
- pay the fee immediately
- leave it on your mortgage to spread the cost over the life of your mortgage, bear in mind that interest will be charged on it as part of your main mortgage.
The standard length of time (the ‘term’) to repay most mortgages is 25 years.
You might consider a shorter term to help pay back your mortgage sooner. However, some lenders, including Halifax, allow a maximum term of 40 years.
This could help with budgeting early on, keeping your payments low initially. You could then reduce the term at any point in the future provided you could meet the higher level of payments.
If you choose to repay your mortgage over a longer period, you’ll be charged more interest overall. So your total repayment will be higher than if you were to take the mortgage over a shorter term.
Take a look at our mortgage calculator to see how different terms can affect your repayments.
You can select which date during the month you make your mortgage payment, allowing you to choose a date which fits your lifestyle. The payment date you select may affect the amount of initial interest you pay on your first mortgage payment.
Find out about applying and what happens next
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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
