Mortgages

Mortgage Types

Searching for the right mortgage is the begining of a long and often complicated process. It is, of course, easier if you already have a foot on the property ladder but many people are now switching both their mortgage and their lender. Although there are hundreds of products out there, they all fit into roughly six mortgage types.

Variable

The basic mortgage rate which most lenders offer is a standard 'variable' rate (SVR). This moves up and down according to the Bank of England base rate changes. Building societies amd banks do not always pass these changes onto their customers and if they do they can be delayed. Special rates revert to the SVR once any deal period comes to an end.

Variable rates have been as high as 18 per cent in the past and so fixed rates have proved popular with people who prefer to protect themselves against the possibility of high interest rates.

Fixed

This mortgage sets the interest rate you will pay for a given period of time. This guarantees that the amount you pay back each month will not chnage for that period. When the fixed rate expires you will revert to the SVR. Fixed rate mortgages usually last between one and five years. Those rates occcuring in the one to three year time frame usually being the best.

 

Capped

This is a variation on a fixed rate mortgage. Your monthly payments will never go above a set figure with in the time period. Below that set figure the rate will move up and down in line with the lenders SVR.

Discount

This mortgage gives a discount on the lender's standard variable rate for a specified period. Discount rates are worth considering if you think the rate will average out below the fixed and capped rate products on the market.

Tracker

This mortgage tracks the Bank of Englands's base rate by a set percentage margin. This means that you benefit straight away from any lowering of the rate regardless of whether your lender chnges their standard variable lending rate. On the other hand if rates go up then so too will your payments and you may find yourself paying above the odds if your lender decides not to pass on the rate increase to its other customers.

Flexible

This mortgage calculates interest daily giving borrowers greater control of their finances. It also allows the option of overpayments. You will often receive a cheque book allowing you to draw on any overpayments you may have made. Whilst most flexible mortgages follow the lender's SVR a growing number of lenders are now offering special deals.

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