Mortgage Choices

There are a number of different types of mortgages and we have outlined the key products below:

  • Standard variable rate - This is the lenders variable rate, and they have the right to change it at their discretion. In practice rates tend to move in relation to funding costs, changes in the Bank of England Base Rate and competition in the market. As the rate rises and falls, so will your mortgage payments.

  • Discounted rate – The rate remains variable, as above. However, as an incentive, you will be offered a discount off the standard variable rate for an agreed period, after which the rate charged usually, reverts to the lender’s standard variable rate, which could be higher than the rate chargeable at the outset.

  • Fixed rate – The lender will fix the rate of interest on your mortgage for a set period of time. During this fixed period your payments will remain the same, helping you to budget. After the fixed period, the rate charged usually reverts to the Lender’s standard variable rate, which could be higher than the rate chargeable at the outset.

  • Capped rate – The lender will cap the rate charged for a set period of time. Should the lender’s standard variable rate go above this capped figure, you will pay no more than the agreed capped rate. Should the rate fall below your capped rate then you will pay the reduced amount, until either the rate rises again or the set capped period ends. This provides you with the similar security of a fixed rate, in that you have a maximum interest you can pay, but also has the added advantage that you could pay less if rates fall. After the capped period, the rate charged usually reverts to the lenders standard variable rate, which could be higher than the rate chargeable at the outset.

  • Tracker rate – This method of repayment is directly linked to changes in the Bank of England Base Rate. Tracker rates are set at a certain percentage above, or below Bank of England Base Rate and this percentage difference is fixed – e.g., if the Bank of England Base Rate rises or falls by 0.25%, your Tracker Mortgage rises or falls by 0.25% also. They can sometimes be arranged on a fixed, discounted or variable basis.


Flexible mortgage

There are various types of flexible mortgages available which all provide increased flexibility, when compared to the traditional types of mortgages. Typically, a flexible mortgage may include some or all of the following features:

  • The ability to make overpayments (without charges), subject to the lenders agreed limits.

  • The ability to underpay your mortgage (subject to limits).

  • The option to take payment holidays

  • A facility to borrow more money (subject to limits), for lump sum expenditure, i.e. home improvements.

  • Current account with cheque book and agreed overdraft facility

  • Credit card with an agreed spending limit

  • Debit card (subject to limits)

A flexible mortgage can be set up on a fixed, capped, discounted, variable or Bank of England base rate tracker basis.

 

 

Repayment Types

 

Repayment
This means that each monthly payment that you make to the Lender will contain an element of capital in addition to the interest payable on the loan. The proportion of each will change throughout the period of the loan. The proportion of capital repaid increases with each monthly payment. As long as all repayments due to the lender are made in full and on time the mortgage will be repaid.

 

Interest only

As the name suggests, you will only pay the interest each month. The actual amount borrowed does not reduce during the term of the mortgage and the full amount of the loan will remain outstanding to be repaid at the end of the term. It is vital that you ensure that you have the means to repay the loan at the end of the term. You are responsible for ensuring that any investment vehicle is maintained for the duration of the mortgage and should note the consequences of failing to maintain such investment vehicles.