| Index »Mortgage Rates |
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| Mortgage Rates |
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| Fixed Rate Mortgages |
| Unlike discounted or tracker mortgages, a fixed rate mortgage means that you will pay the same amount of interest for an agreed time (usually 1-10 years). They offer the security of knowing that if interest rates go up, your repayments will remain the same.
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| Pros and cons of a fixed rate mortgage.
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One of the most popular types of mortgage with first time buyers, as it offers stability and allows you to control your budget more effectively.
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This also makes it the favourite choice of young families and single homeowners who don't want to take the risk of a large rise in interest rates - which would mean an increase in monthly repayment amounts.If you expect there to be changes in your financial circumstances in the near future, a fixed rate is usually the best option.
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However - if interest rates fall, you won't see the benefit.When your fixed term ends, your payments may rise as you switch to the normal variable rate
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| Variable Rate Mortgage |
| Every mortgage lender has a standard variable rate, or SVR, of Interest on which it bases all its mortgage deals. The standard variable rate is, in turn, based on the Bank of England's base lending rate - and this is decided at monthly meetings of the Bank's monetary policy committee, or MPC. Every time the MPC raises its rate, mortgage lenders race to increase their standard variable rates, generally by the same amount. And every time the MPC lowers its rate, the lenders do too - only often not so quickly!
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| But that doesn't mean mortgage lenders charge the same as the Bank of England. Mainstream lenders - these are banks, building societies and other financial institutions which target customers with reasonable credit ratings- generally set their standard variable rates at about 2 percentage points above the Bank of England's base lending rate.
This means if the base lending rate is 5.5 per cent, most SVRs will be around 7.5 per cent. But some lenders will set theirs higher, while others, who are trying to increase their customer base, might go a bit lower. But if you have a reasonable credit history, there is no reason why you should pay a costly standard variable mortgage rate. |
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| Capped Rate Mortgage
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| Capped mortgages are guaranteed not to exceed an agreed interest rate - making it easier for you to control your monthly budget.
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| Before you take out a capped mortgage, you should consider the following advantages and disadvantages:
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If interest rates rise, you know that you won't have to pay beyond a certain amount
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If rates fall, you can still enjoy lower payments
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It's easier to budget, as you know how much your monthly
repayments will be.
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There are often early repayment penalties
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| The capped rate only lasts for a certain period (often 2-3 years), then the mortgage usually returns to the lenders SVR (standard variable rate)
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| Cash Back Mortgage |
| Cashback mortgages can be very useful deals for first time buyers, helping to cover initial costs.
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| What Is A Cashback Mortgage?
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| Cashback mortgages offer an initial lump sum that can be used for costs such as legal fees, stamp duty, removals, new furniture or home repairs. The mortgage deal usually allows you to borrow up to 95% of the property value, with cashback of around 5-6%. Lenders commonly arrange cashback mortgages as standard variable rate or tracker mortgages. In some cases, the cashback is paid upon completion of the mortgage. There may be early repayment charges if the mortgage is repaid before the end of the term.
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| Current Account Mortgage
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| Current account mortgages combine a fully flexible mortgage with a current account. With hundreds of deals available across the UK through dozens of lenders, finding the right deal can be difficult.
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| What Is A Current Account Mortgage?
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| Current account mortgages allow you to channel all of your finances (your mortgage, savings, loans and current account) into one single account. At the end of every month any money left on the balance goes towards paying off the mortgage. Interest is only charged on the outstanding amount, reducing your interest payments overall. Usually the current account mortgage lender will draw up a plan with you to decide on the minimum amount that should pay each month. If you leave more in your account each month, you will pay less interest and pay off your loan quicker.
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| A current account mortgage isn't right for everyone. If you can regularly leave more than the agreed amount in your account at the end of every month, it can be a very useful deal. It's worth considering the following points before making a decision:
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If you are a high rate taxpayer or have a large amount of savings, then this could be the right choice for you
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It offers all the benefits of a flexible mortgage
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Gives you greater control of mortgage repayments
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The lender will usually require that you pay your monthly salary directly into the CAM
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Interest is calculated on a daily basis
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Due to increased risk, generally higher interest rate than fixed or variable rate deals
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This rate type requires a measure of financial self-discipline
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| Discounted Mortgage
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| Discounted mortgages can be arranged with hundreds of different companies across the UK.
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| What Is A Discounted Mortgage?
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| Discounted mortgages work in a similar way to tracker mortgages. Both are variable loans, meaning that the rate can change during your mortgage term. However, unlike a tracker, a discounted mortgage doesn't follow the base rate. Instead, discounted mortgages offer a reduction in the lender's SVR (standard variable rate) for an agreed period of time. Usually, this is around 0.5 -1.5% less than the standard rate for a duration of 2-3 years.
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| Discounted mortgage pros and cons...
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Discounted mortgages are good deals for people able to manage any fluctuations in their monthly repayments.
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If interest rates fall, you will benefit from lower payments.
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They are some of the cheaper available mortgages, but they are tied to a risk of increased interest rates.
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People who prefer to know exactly how much they will pay each month will probably prefer a fixed rate mortgage.
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Discounted loans only stay at the lower rate for a certain period (usually 2-3 years). After that the repayments will return to normal.
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As with any variable loan or mortgage it is important to remember that payments can go up as well as down.
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| Flexible Mortgage
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| Flexible mortgages give you maximum control over your mortgage repayments. With deals varying from lender to lender,
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| What Is A Flexible Rate Mortgage?
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| Flexible mortgages allow you to take more control when paying back your loan. Depending on the deal, you can choose how much you pay back per month, take payment breaks or even borrow back overpayments.
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| There are advantages and disadvantages to flexible mortgages. Before you decide if it's right for you, it's worth considering the following points:
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You can make overpayments, or underpayments with most deals, making it a particularly popular arrangement with self-employed people and contractors
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Usually, you can take payment holidays or borrow back overpayments
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Flexible mortgages work in your favour the most when you make regular overpayments, paying off your loan quicker
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Most lenders will offer fixed, tracker and discount rate flexible mortgages
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| Offset Mortgage
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| With an offset mortgage you can link your savings and current account with your mortgage. This means that any cash you have in savings can reduce your mortgage interest payments. There are hundreds of offset mortgage deals in the UK, so finding the right one can be a headache.
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| What Is An Offset Mortgage?
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| Offset mortgages are totally flexible arrangements that tie together your current account, savings and mortgage. All are kept in separate accounts, but when the interest is calculated, each is taken into consideration. This helps reduce interest payments.
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| While offset mortgages offer lots of benefits and incentives, they are not the right deal for everyone. Before making your decision, it's worth considering the following advantages and disadvantages:
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If you have plenty of savings and money in your current account, an offset mortgage can save you lots of interest
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However, you won't receive any interest on your current account savings (though savings rates are very low at the moment anyway)
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This works to help you pay off your mortgage faster, and save you money
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All of your other debts are consolidated into a single loan (including credits cards, store cards and personal loans), so you can enjoy lower repayment interest rates
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It's worth remembering that consolidating debts into a mortgage does mean that you will take longer to pay them off
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Unlike a current account mortgage, you can still see your individual accounts
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Offset mortgages are particularly popular with self-employed people, contractors, or people on a bonus scheme
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The extra flexibility means that interest rates are generally higher than other mortgage types
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| Tracker Mortgage
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| Tracker rates are linked to the Bank of England rate or some other 'base rate'. This means they'll always go up or down in line with changes to the base rate.The name might be a bit esoteric, but a base-rate tracker is actually just a mortgage with an interest rate that tracks the Bank of England base lending rate.
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| These deals can last for a few years, reverting to the lender's standard variable rate after that. Or they can be for the whole mortgage term - known as a lifetime tracker.For instance, you might find a mortgage deal with the interest rate set at base rate plus 0.25 per cent for two years, or base plus 0.75 per cent for 'life'. Most lenders set their standard variable rate at about 2 per cent over base, so effectively this is a type of discount deal. Every time the Bank changes its base rate, your interest rate will change by exactly the same amount. |
| Just like with any other variable rate discount deal, a base-rate tracker will suit some people better than others. If you're generally optimistic about the long-term prospects for interest rates, a tracker mortgage might be worth considering. When the Bank cuts its base rate, your lender will pass on the full amount of the cut right away.
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| The thing to note here is that the mortgage lenders don't always do this for their other variable rate customers, who may have to wait longer only to see their rate fall by less than the full amount. Of course, if the Bank raises its rate, yours will go up by the same amount and you will have to find the extra money every month.
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| Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it This is a general guide and should not be taken as any recommendation. Suitability of a mortgage will depend on your personal circumstances. Please seek appropriate Expert advice before relying on them. They are subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
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