Independent Mortgage Advice - Types of Mortgage Interest Rate
We have independent access to every Building
Society, Bank and Specialist lender in the market. Why not let us research the
market for you?
CLICK HERE
for Mortgage and Re-mortgage quotes emailed to your pc
Types of Mortgage Interest Rates
Which type of mortgage interest rate
should you choose?
When considering what kind of mortgage to use, you will want to consider
the deals on offer to you and the relative advantages these present to
your circumstances. Mortgages usually offer one (and sometimes more) of
a number of features, listed below:
Standard variable rate (SVR) mortgage Most borrowers are transferred to
their lender's SVR once their initial, promotional rate period comes to
an end. This is usually the most expensive of their lender's rates, and
the rate from which many people choose to switch to a new product
elsewhere.
Fixed Rate mortgage A fixed rate loan charges a set rate of interest for a
predetermined period, and then usually reverts to the lender's SVR. This
kind of loan offers you the security of knowing how much you'll be
repaying during the initial period, and can make budgeting much easier.
But repayments may prove more expensive than a discount rate initially,
and may also become uncompetitive later on, depending on how interest
rates move over the period of the fixed rate.
Capped rate mortgage A capped rate product offers similar security to a
fixed rate - since the rate you pay during the capped period won't
exceed the capped rate - as well as the chance to benefit from any fall
in mortgage rates within the capped period. However, the benefits of
capped rate mortgages usually come at a price: rates are often higher
than on lenders' comparable fixed products, and the initial term seldom
lasts longer than two or three years.
Discount rate A discount mortgage offers a reduction of a given
amount on the lender's SVR and if this rate changes, the rate you pay
will fluctuate in line with it. Usually, the shorter the discount period
is, the greater the discount. After the discount finishes, the loan
reverts in most cases to the lender's SVR.
Tracker mortgage Trackers give borrowers the certainty of knowing the rate
they pay will move automatically in line with Bank Base Rates. This
allows the borrower to benefit straight away from any cuts in these
rates, even if, as is often the case, the lender delays reducing its SVR
to reflect the reduction. Many trackers also offer flexible terms.
Cashback mortgage A cash back mortgage pays an upfront lump sum, thereby
allowing a borrower to pay for, say, home furnishings or to repay credit
card debts, or to put down a deposit. The rate paid is most often the
lender's SVR.
Droplock mortgage A droplock mortgage is a discount or tracker mortgage
which has an option to switch to a fixed rate at any point within the
initial period without paying early repayment charges (also known as
'redemption penalties'). This provides an ideal way to benefit from base
rates when they're low, with the option to switch easily to the
protection of a fixed rate should interest rates then look set to rise
significantly.
Additional features In addition to the features listed above,
mortgages can offer one or more additional features, such as:
Flexible mortgage A flexible mortgage allows you to vary your monthly
repayments to reflect your changing financial circumstances. Depending
on the flexibility of the product, you can, without penalty: · over- or
under-pay, and/or · repay lump sums, and/or · take a payment 'holiday'
to allow you to fund a large expense, such as a wedding or new car.
Payment holidays and underpayments are, of course, conditional - usually
on the borrower adhering to, or exceeding, a predetermined repayment
schedule. And many deals, even if not fully flexible, still offer the
ability simply to overpay.
Current account mortgage With a current account mortgage, your current
account and mortgage are effectively merged, and your salary can be paid
into your mortgage account. Interest is calculated on a daily basis, and
when you pay money into your account the overall loan size is lowered,
thereby reducing the amount of interest paid.
Offset Mortgage Like current account mortgages, offset products allow you
to offset the balance of your mortgage against any funds in a savings
and/or current account held with the same lender, and pay interest
(calculated on a daily basis) on the net balance between the accounts.
Contact Us
for help with your mortgage
|
