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Scotland’s Trust Deed is keen that everyone has the information and expert advice they need when taking out a mortgage.

That’s because missing mortgage payments is one of the key indicators of the beginning of serious financial trouble. We regularly help Scots in debt who are in this position so we have first-hand experience of what can happen when wrong decisions are made about a home loan.

The first part of our guide outlined the differences between re-payment and interest only mortgages. This second part expands on the mortgage deals available and exactly what you should consider before buying a house.

Mortgage Deals – your options

  • Variable rate mortgages expect you to pay the varying interest rate of your lender. Their rate will be similar to the Bank of England’s base rate and may be different from lender to lender. Your monthly payment amounts will change depending on the current ‘standard variable interest rate’ of your lender.
  • Fixed rate mortgages involve an interest rate that is agreed and won’t change for a set period of time. This is ordinarily two, three or five years. Fixed rates are great if you need to plan your budget and will protect your payment amounts should interest rates go up. However, should the rates go down you will still be paying the higher rate of your deal.

It’s important to think very carefully and take professional financial advice before choosing a fixed rate loan. Should you be struggling and missing mortgage payments, it would be terrible to think your monthly payments could have been met had they tracked the base rate of interest.

  • Tracker mortgages follow the Bank of England’s base rate of interest. The most common deal is for your interest to be a small percentage above that of the changing Bank of England rate for the life of the mortgage. Your monthly payment amount will go up and down accordingly.

The likelihood of missing mortgage payments will increase should you not allow room for flexibility in your mortgage budget. This is clearly most important should you be thinking of a variable or tracker mortgage. That said should payments go down with interest rate changes, it is a good idea to use that extra money per month to pay more towards repaying the original loan amount.

What to consider – the mortgage basics

Think very carefully about the amount you can afford to borrow. The house may be beautiful but if affording it over-stretches you financially or relies on you keeping your current high salary for the life of the loan, then it is a bad idea.

How long the loan term will be, basically how many years do you have to pay the money back plus interest. The shorter the loan the more expensive your monthly payments will be.

Which type of mortgage and which deal? The differences have been outlined in this guide and in part one. There is a lot to discuss and it’s vital to get professional, impartial advice from a mortgage or financial advisor.

What is the current state of the economy? The wider world, national and international events can have an effect on the Bank of England’s base rate and that the variable rate of your lender. Make an informed choice.

Scotland’s Trust Deed urge you to be realistic about what you can afford to pay per month. Don’t be swayed by the romance or excitement of buying ‘the perfect house’ as it will become a nightmare once you start missing mortgage payments.

For those people living in Scotland then the helpful team of advisors at Scotland’s Trust Deed can offer impartial advice about how to deal with debts.