The mortgage interest rate is the most important element of yournew mortgage deal. The interest rate determines how much interest you will have to pay back over the term of the mortgage. We have compiled a guide below to explain some key points regarding the different mortgage types available in the market.
Fixed rates are pretty much self explanatory. This type of scheme offers protection from rate increases and allows for easy monthly budgeting. However, fixed rates will nearly always come with an Early Repayment Charge, if you need to sell or remortgage your home before the end of the fixed rate period. Another risk is that if rates fall during the fixed period you will continue to pay what may now be a relatively high rate.
This is the rate that each lender charges as standard. The Bank of England base rate often affects the variable rate that a lender may charge. For example, the lender may choose to have a variable rate of 2% over base. This simply means that your variable mortgage interest rate will be the Bank of England’s current rate, plus the additional 2%.
Lenders often offer discounted variable rates. This means that the lender will offer to reduce their variable rate by a particular amount, for example 3%, for a period of time. This means that the repayments will be lower during this period. When the discount period expires the interest will revert to the lender’s standard variable rate. There are usually early redemption or repayment charges payable during the discounted period.
Tracker rate mortgage is quite similar to a discounted rate except that the rate is linked directly to the Bank of England Base Rate and will move in line with this. Early repayment charges are generally payable. These are also usually suited to overpayments than a traditional discounted or fixed rate.
An offset mortgage is ideal for mortgage borrowers who wish to utilise their savings more tax efficiently. Also, they are designed for people who wish to overpay their mortgage, but may require access to these funds later. Rates are generally trackers without early repayment charges. The rate is often linked to the base rate for the whole term of the mortgage.
A capped rate mortgage helps you plan your budget more effectively. The interest rate cannot rise above an agreed ceiling limit. When interest rates come down however, the borrower still benefits because the interest rate is reduced in line with the base rate reductuion. This may be subject to a minimum rate. This makes it a particularly attractive option if interest rates look like they are quite volatile over the period. The capped rate is for a particular period of the mortgage term. At the end of the capped rate period the mortgage rate reverts back to the appropriate variable rate.
A cashback mortgage provides a lump sum once the purchase is completed. This can either be in the form of a set amount or a percentage of the mortgage loan taken (typically two to five per cent). The cash back is repayable if the mortgage is settled before a particular period set by the lender.
Flexible mortgages were developed to enable a borrower to cope better with any drastic changes that might occur in their financial situation (for example, having a large lump sum to repay, or being made redundant). Sometimes are also known as 'open plan' or 'freedom mortgages'.
Few of their features are as follows:
• Lump sum payments towards the mortgage
• Payment holidays
• Monthly overpayments
• Allowance of withdrawal of a pre-agreed further advance
• Reducing or stop making payments during difficult financial situation
Current account mortgages combine current account with your mortgage. They are designed to pay off your mortgage quicker. The advantage being interest is calculated on the difference between your mortgage balance and the balance of funds in the current account.
JLM Mortgage Services Limited was founded in 2002 with over 20 years of experience within both the Estate Agency and Financial Services fields.
Over the years we have helped thousands of new and old customers, Click Here to hear what they have said of the advice and service we have provided.
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JLM Mortgage Services Ltd is registered in England No. 470 1803. JLM Mortgage Services Ltd is authorised and regulated by the Financial Conduct Authority, FCA No: 300629. Your home may be at risk if you do not keep up payments on a mortgage or any loan secured upon it. Think carefully before securing other debts against your home.