The interest rate has always been a dominating factor in mortgages. It is unavoidable and accompanies property loans in varied forms. Depending upon the types of interest rates, there are different versions of mortgage products.
Below are the three popular types, and if you are planning to take a mortgage, you should know about these.
As you can understand by the term, these mortgages remain the same in their interest rate for a specified period. This duration can be three years, five years or whatever according to the policies of the lender. After the term gets over, the fixed-rate turns into the variable rate, which keeps changing. Most of the people try to get a fixed price, as it makes their instalments predictable and also manageable. They do not need to worry about the volatile rates that disturb the monthly budget and even become more significant than the capacity of their wallet.
Once again, you have the term to explain its nature so naturally. Yes, the rate of interest that keeps changing is known as variable rate. You may think that this type of property loan is always expensive but that is not the case. In fact, in case of variable rate of interest, the borrower may get a significant benefit. If the interest rate is down in the market, the instalments shrink in size. For example, currently, the UK market is low due to the Coronavirus chaos prevalent in the industry. Those who are on a variable rate of the mortgage are enjoying smaller size of instalments. The prices are not very high due to the demoralizing business situations for the lenders.
Things are so predictable if they are named accurately. Yes, you are right, the interest-only mortgages are those in which the mortgagor has to pay only the interest as the instalments. But this happens for a specified period. Once that period gets over; the mortgage holder has to pay the principal of that duration. The payment happens either through a lump sum amount or through subsequent instalments. It is essential to know that when the borrower is paying only the interest, he is not building up equity as, during that time, the principal amount is due.
Are all the mortgage types easy to avail?
The above three types are quite popular in the mortgage industry of the UK. All of them have their do’s and don’ts.
Some are easily attainable while some are not; for example, the variable-rate mortgages are more comfortable to qualify. However, fixed-rate mortgages are difficult to attain especially for those with the poor credit score. Especially those who are looking for a guaranteed mortgage for bad credit in the UK usually get variable rate mortgages.
Fixed as well as interest-only mortgages are difficult to reach for the applicants with the weak financial situation. This is because the lender cannot take risk, as it can already see the weaker credit score performance and repayment capacity. However, if the fund seeker improves creating rating at least a bit before applying for the loan, there are chances of approval on any mortgage.
If you are also planning to buy a property and avail funds, the above information can guide you to make the right decision. It is always advisable to be reliable and flawless in your finances. The lender wants to see e an excellent financial capacity to repay the borrowed money. If you can prove that, then getting any interest rate on the mortgage is not impossible.