Advantages and disadvantages of different mortgage products…

Different mortgage products have specific advantages and disadvantages; your choice of mortgage will depend on your specific situation and your attitude to both risk and cost.

If your priority is security then the logical decision may be to fix your mortgage rate, so that your payments will stay the same for an initial period, or opt for a capped rate mortgage, so that during the initial period your payments can drop but not increase. Generally our clients opt for initial periods of between 1 and 5 years, but there have been fixed rates on offer for up to 25 years, and these longer term products may be becoming more common.

The main disadvantage of most fixed and capped rates is that if you choose to switch to another mortgage lender, and often if you choose to pay your mortgage off early, you may have to pay large early repayment charge; if you wish to keep your options open, and safeguard future flexibility, this can be a major factor in deciding not to choose fixed or capped mortgage payment.

The lowest rates offered by lenders will tend to be discounted rates, variable rates and tracker rates, because these will stay, at least approximately, in line with Bank of England Base Rate changes; lenders are not risking heavy losses on these deals, as any Base Rate rise will be followed by a rise in the mortgage rate. While there is an advantage in terms of the cost, discounted, variable and tracker payments can rise, and this sometimes puts off the more cautious borrower. If you choose a product with no early repayment charge, on the other hand, you can still have the option of switching to a fixed rate further down the line without incurring such charges.