Which mortgage is best for me?

BEFORE you begin looking for a home, find out how much you could borrow. There are plenty of online tools to help or you could consult a mortgage broker, building society or a bank such as the Halifax.

Once you know, you might want to approach the lender to get an ‘Agreement in Principle’, which gives you an indication of how much you could borrow. This means sellers are more likely to accept your offer, as it reduces chances of delays.

After the offer’s been accepted, you need to apply for the mortgage officially. You’ll need a deposit – a minimum of five per cent, but more is desirable. The more you have, the better interest rate you’ll receive, so the cheaper your mortgage will be.

Repayment or interest only?

THERE are two main types of mortgage – repayment and interest only. With the former, you’ll eventually have paid back all the money borrowed and the interest, meaning the property will be yours.

With ‘interest only’, you only pay off the interest, so at the end you’ll still owe the amount you borrowed. That means you’ll have to remortgage (if possible), pay it off in full, or sell.

The advantage, however, is that it costs a lot less every month than a repayment mortgage, so attracts those who think they’ll come into money before the term is up or who plan to sell up and move somewhere cheaper with the profit.

Once you’ve decided between these two, you’ll get a choice about interest rates.

Most, especially first-time buyers, choose a ‘fixed rate’, which means, for a specified period, you’ll be paying the same amount each month whether your lender’s interest rate goes up or down.

They’re great for people who want the stability of knowing what their monthly mortgage payment will be.

Also common are ‘tracker’ mortgages, which generally follow the BoE’s rate, and ‘variable’, which follow the lender’s. They’re good for those who can afford to pay more if necessary, but think rates might go down.