There are many important things to consider when choosing a mortgage and never more so than if you are looking for a mortgage and you have a young family.
Interest Free or Repayment Mortgages
Before looking at the various types of mortgage options available to you your initial concerns are likely to be around and whether you can afford the monthly repayment costs and how soon you wish to pay off your mortgage.
If you’re able to make higher mortgage repayments, you’ll probably consider the short-term approach which is to opt for a repayment mortgage which allows you to reduce the capital you need to repay before you’re able to own the house outright.
However, if you’re not a particularly high earner and you have the added financial responsibility of a young family to bring up, it’s probably more likely that you’ll opt for a longer-term agreement and choose the interest free option.
Initially, this will seem very similar to paying rent as you’re only repaying the interest on your mortgage and are not paying anything towards reducing the capital of your borrowing. However, not only is it definitely a cheaper option than renting, you’ll benefit from reduced monthly payments for the first few years.
This reduced sum will help you to provide for your family in the early years of the children with the aim that, as time goes by, you can make some savings and investments too and possibly work yourself into a position where you’re promoted or progress along your career path with another company, thus earning more money.
As time goes by, therefore, you’ll eventually get to the stage whereby you’ll be able to switch across to a repayment mortgage later and use some of the savings and investments you’ve accrued over time to begin to pay back the capital costs of the house itself.
This is often the preferred option for couples with a young family as it frees up more money for parents to provide their children with a good foundation in life.
Furthermore, providing you’re a good budgeter and are planning to bring up your children in the same house over, say, 10 or 15 years, it’ll allow you to build up enough funds to be able to make inroads into repaying the capital back further down the line.
Different Types of Mortgages Available
Mortgages come in all shapes and sizes with different terms to boot and it’s important that you speak to an independent financial adviser or to seek out the free services of an independent mortgage broker to get advice and assistance in choosing the best mortgage to suit your family’s needs.
However, here are a few of the more common types of mortgages you’re likely to hear about and what they mean:
Fixed Rate, Variable Rate, Capped Rate
Simply put, a fixed rate mortgage will remain the same, in terms of interest charges you’ll have to pay, throughout the duration of its term. A variable rate will fluctuate up or down depending on the Bank of England’s interest rates.
And, whilst that may mean you may lose out if you opt for a fixed rate and the bank’s general trend is for decreasing interest rates, the fixed option is often better for young families as it allows them to budget their finances better, knowing that the rate won’t fluctuate.
Capped rate mortgages have an element of both fixed and variable rates combined in that they can only rise to a certain level in line with the Bank of England rate to a certain maximum APR, after which they’re fixed and can’t rise any higher.
Therefore, for those who have a pretty good income and feel that they could still cope financially with the maximum upper rate should rates rise to that level, they still give people the benefit of a variable rate should the bank rate fall.
There are many other options including base rate tracker mortgages, discount mortgages, 100% mortgages and cashback mortgages. The crucial thing is to seek advice first based upon your family’s own individual circumstances and to choose a mortgage that is not only right for you all but one whereby you still have some breathing space and financial room to manoeuvre if bank rates take a turn for the worse.
And, remember, you don’t have to stay with the same mortgage lender for life. You should have a regular periodic review with a mortgage broker who may be able to get you an even cheaper deal later on.
The Money Advice Service has more information about how to choose the right mortgage for your family.