Fixed Rate Mortgages
With a fixed rate mortgage your monthly payment will not alter for the period of the fixed rate.
If you are the kind of person that likes the reassurance of knowing exactly what your monthly payments will be, then a fixed rate may be the most suitable mortgage for you.
A fixed rate has the advantage also of potentially saving you money if interest rates generally move higher during the fixed rate term. On the other hand if interest rates move downwards you might be regretting having tied yourself into a fixed rate term.
Some lenders will lend more money if you take a long term fixed rate.
At the end of the fixed rate period you will revert to the standard variable rate or another rate that that will last for the remainder of the mortgage term.
Usually there will be a penalty charge covering the fixed rate period during which you will pay a charge for redeeming the loan.
There are some fixed rate deals without redemption penalties.
At the end of a fixed rate term, assuming there is no tie in period or penalty for going elsewhere it may be beneficial to re-mortgage to another lender
Tracker Rate Mortgage
With a base rate tracker mortgage the rate of interest is tied to the base rate set by the Bank of England.
It is really a discount mortgage provided in a different format. The rate you pay is given as a percentage margin that can be above or even below the Bank of England base rate and this margin is usually fixed for a period, anything from 6 months to five years.
At the end of the tracker rate period you will revert to the standard variable rate or another rate that that will last for the remainder of the mortgage term.
Usually there will be a penalty charge covering the tracker rate period during which you will pay a charge for redeeming the loan.
There are some tracker rate deals without redemption penalties.
At the end of a tracker rate term, assuming there is no tie in period or penalty for going elsewhere it may be beneficial to re-mortgage to another lender.
Discounted Rate Mortgages
A discount rate mortgage offers a percentage discount off the lender’s standard variable rate. The level of discount is usually fixed for the period of the discount, anything from 6 months to 5 years. At the end of the discounted rate period you will revert to the standard variable rate or another rate that that will last for the remainder of the mortgage term.
Usually there will be a penalty charge covering the discounted rate period during which you will pay a charge for redeeming the loan.
There are some discounted rate deals without redemption penalties.
At the end of a discounted rate term, assuming there is no tie in period or penalty for going elsewhere it may be beneficial to re-mortgage to another lender.
Cash Back Mortgage
Cash-back mortgages are often aimed at first time buyers and the mortgage lender will offer a lump sum of cash at the start or sometimes at an agreed point during the term of the mortgage.
Usually the cash-back is offered as a package of benefits (e.g. linked with a discount) but pure cash-back mortgages are not uncommon.
Mortgage lenders may offer a sum of money towards the cost of legal fees or survey charges. This could be, for example, £200 to £1000 as a flat amount, or a percentage of the mortgage loan.
Re-Mortgages
Most mortgage lenders offer mortgage deals at a rate for a specific number of years – whether a fixed rate, discounted rate, or tracker rate, and normally 2, 3 or 5years.
At the end of this deal period you are automatically moved onto the lenders’ Standard Variable Rate (SVR) which can be higher than other deals available or just put you at the whim of the lender and possible rate rises. So you can remortgage simply to reduce your payments &/or provide the security of a fixed rate.
Re-mortgaging also gives the opportunity to rejig your finances, perhaps to consolidate some expensive finance onto a lower interest rate as part of the mortgage. This is known as “debt consolidation”.
It might also provide you with the opportunity to release equity, perhaps for an extension, home improvements or the deposit for another property.
It also provides the opportunity to review your financial situation, and make sure you are on track to clear your mortgage as early as possible and/or see if there are any ways of shortening the term.
NOTE: Consolidating unsecured debts into your mortgage may increase the total cost of the debt by extending the term over which it is repaid and by securing the debt against your home it puts your home at risk if you fail to keep up with the repayments.
Standard Variable Rate
A standard variable rate mortgage is based on the individual lender’s own base rate. This rate is the one that customers revert back to at the end of a fixed, capped or discount period. This is much higher than the Bank of England base lending rate.
When the Bank of England changes their base lending rate mortgage lenders will change their own base rate up or down. However, they are free to alter their base rate by different amounts than the Bank of England according to their own needs.
Standard variable rates have no tie in periods and therefore there is no redemption penalty attached to the loan. This means that when you pay off the mortgage by selling the property or maybe transferring to another lender there will be no penalty for doing so.
If you’d like to talk about this or any other type of mortgage please give us here at Mortgage Tree a call on 03333010744.