When looking for a
mortgage, it's essential to understand the different products that are
available so you can be sure you get the right one for you. Lenders offer
different interest rate options and this will affect your monthly payments. So
choosing the right deal could save you money.
With so many product
choices available it is essential you get professional indepenedent advice.
Types of mortgage
products available:
Standard Variable Rate
Mortgage
With this mortgage,
your payments will go up and down as the lender's standard variable rate goes
up or down. Usually any changes in the lenders variable rate will be in line
with movements in the Bank of England base rate. The Bank of England Monetary
Policy Committee reviews this rate on a monthly basis.
Is it right for me?
Yes - if you can
afford to pay more when mortgage interest rates go up and want to take
advantage of lower payments if rates fall.
No - if during the
early years you would be unable to cope if repayments increased because of
rising interest rates.
Base Rate Tracker
Mortgage
This is similar to a
variable rate mortgage. But the interest rate will go up and down exactly in
line with any changes in the Bank of England base rate. Your mortgage payments
will go up and down too as the interest rate changes. The tracker period is
usually for a specified time, which can be from one year up to the lifetime of
the mortgage loan. At the end of the tracker period, your mortgage interest
rate will change to the lenders standard variable rate. This product may carry
an early repayment charge.
Is it right for me?
Yes - if you want to
be sure your mortgage rate falls by the same amount as the Bank of England base
rate falls, but the drawback is the mortgage rate also rises in step when the
base rate increases.
No - if you find
yourself locked into a rate above the base rate, which may be higher than the
standard variable rate.
Fixed Rate Mortgage
Your mortgage interest
rate is fixed for a set period only, during which your mortgage payments will
stay the same. At the end of the fixed rate period, your mortgage interest rate
will change to the lender's standard variable rate. Fixed rate mortgages are
usually available for between one and ten years, hey can be available for
longer periods depending on market conditions. This product may carry an early
repayment charge.
Is it right for me?
Yes - if you need to
budget with certainty for the next few years, or you think mortgage interest
rates will rise, or both.
No - probably not if
you think mortgage interest rates will fall.
Discounted Rate
Mortgage
The lender offers a
discount off their standard variable rate for a set period, normally one or two
years. Your mortgage payments will still vary in line with changes in the standard
variable rate. At the end of the discount period, your mortgage interest rate
will be the same as the lender's standard variable rate. This product may carry
an early repayment charge.
Is it right for me?
Yes - if money is
tight when you first take out the mortgage, but you're confident your income
will increase.
No - if you won't be
able to cope if interest rates rise later on, increasing your payments.
Capped & Collar
Rate Mortgages
With a capped rate
mortgage the interest rate can go up or down in line with movements in the
lender's standard variable rate, but cannot go above a set upper limit, known
as the 'cap' or 'ceiling'. This type of mortgage can also have a set lower
limit, known as the 'collar'. For these mortgages the interest rate can move
between these limits but cannot fall below the collar or go above the cap. This
product may carry an early repayment charge.
Is it right for me?
Yes - if you like to
budget with some certainty, think mortgage interest rates might rise above the
cap, or you want the security of knowing your payments cannot rise above a set
level and would like to benefit from any fall in interest rates.
No - if your mortgage
adviser can find a fixed rate set at a lower rate than the capped rate, and you
think rates are unlikely to fall below the level of the fixed rate deal.
Cashback Mortgage
The lender pays you a
cash lump sum after completion, which you can use for any purpose. This product
may carry an early repayment charge.
Is it right for me?
Yes - if you need a
cash lump sum, for example to do up your home, or you expect the cashback to
more than compensate for any rises in interest rates during the period when an
early repayment charge may apply.
No - if you can manage
without a cashback now and can get an alternative deal.
Remember your home may
be repossessed if you do not keep up repayments on your mortgage.
