Your guide to mortgage products and the importance of your credit score

With so much choice when it comes to looking for a mortgage, of types as well as providers, you might end up feeling under pressure or confused. Here, we’ll examine some of the most common options available to you to make it easier.

To get things started, you’ll find much more useful information in this mortgage product guide from Experian. Before taking a look at this, it’s worth taking a moment to consider the importance of your credit score. This affects how easily you’ll be able to secure the mortgage you select. It’s based on an analysis of your credit files to assess and represent your personal creditworthiness. When you then apply for credit (including a mortgage), this information will be used to decide whether to offer you one, and the terms which will be required. You’ll find more details about an Experian credit check on their website.

Three key types of mortgage products to consider

• Fixed rate mortgages – unlike variable (see below), the name tells you that you will be committed to paying a certain rate and fixed repayments over an agreed period of time (often up to five years). Interest rates may change in the outside world, inside your mortgage bubble they stay constant. Obviously, if rates fall, then you gain no benefit. Positively, if they rise you do! You also know exactly how much you are paying and can budget over the term.
• Variable rate mortgages – as this suggests, the rate changes, either simply at the behest of your lender, or, in the case of “tracker” options, through a direct link to the rate set by the Bank of England. You can gain flexibility, and often a lower rate than offered for fixed-rate deals (which also typically include early repayment charges). The “tracker” does often also have this charge, but is linked to the BofE rate, giving you advance warning of any changes. With rates at an all-time low, it’s likely that, for the next few years, any changes will only be in one direction. This can prove to be a shock to newer mortgagees who have never experienced this situation! Introductory offers of discount rates might tempt you in – but make sure you are fully aware of any terms under which these are offered.
• Offset mortgages – these are a way to link any savings you have to your mortgage. For example, £35K in savings and a £175K mortgage “merge” to create a figure of £140K on which interest is charged. However, repayments are on the total sum, so the good news is that your mortgage will be paid off quicker than otherwise.

An important decision to make

As well as the types of mortgage products, you will also need to consider the ways you wish to pay. You can choose from repayment or interest-only options. The former reduces your capital as well; the second obviously doesn’t. With the latter, you need to make other arrangements to be able to pay the capital back when your mortgage comes to term.

A final piece of information

Deciding on the type of mortgage you wish is one step. Actually getting a mortgage is another. As well as appreciating your credit score, it’s also worth knowing that new guidelines are now in place for lenders when considering the provision of mortgages. You’ll find useful information on the BBC website here. This will help you appreciate what to expect when you apply for whichever type of mortgage you prefer.