Although the many mortgage options available may at first appear bewildering, they can be broken down in to the following types. Your adviser can explain these to you in more detail and help to determine the best option for your circumstances.
Fixed Rate
As the name suggests the interest rate, and therefore the monthly payments are fixed for a set period of time, either a number of years or to a specific date. Once this period has ended, the rate usually goes back to the lender’s standard variable rate. The period for which a rate can be set at could be two years or as much as thirty years. There are usually early repayment charges on these rates if you wish to repay the loan before the fixed rate is up. Fixed rates are often popular with people who like to keep to a set budget.
Tracker rates
A tracker rate will follow the Bank of England’s base rate at a specific point either above or below this figure. This means that if rates fell your mortgages payments go down, of course they could also increase. All our mortgage advisers are suitably trained discuss the economic factors which may affect rates, but it should be understood that these are matters of opinion rather than fact and the industry has been known to get it wrong.
Standard Variable Rate
Usually abbreviated to SVR. This rate could change following a rise or fall in the Bank Base rate, but this is at the discretion of a lender. This is often the rate that mortgages revert to after a specific deal such as a fixed or tracker ends.
Discounted
This is a variable rate but set at a fixed percentage below the lender’s standard variable rate, therefore a rise or fall in the lender’s SVR will result in a change to your mortgage payments. If you wish to pay back your loan before the end of the discounted rate, you may have to pay a charge known as a early repayment charge
"Cap & Collar"
A cap is a maximum rate of interest that can be charged for a specified period, while a collar is a minimum rate of interest that can be charged for a specified period. The interest rate you pay can vary between these points.
Cashback Mortgage
With a cashback mortgage the Lender gives the borrower a sum of money, usually a percentage of the loan, when the mortgage is taken out. This is typically to help with the cost of moving home, however the borrower will be tied in to the mortgage with penalties for repaying their mortgage with a set time period.