Mortgages




Standard Variable Rate

A Standard Variable Rate mortgage is in basic terms a product with no ‘bells or whistles’ on it. It is a rate that the relevant lender will charge where no designated scheme is being applied i.e. Fixed Rate or Discounted Rate. A Standard Variable rate does exactly as it implies in that it will vary in line with Bank Of England  interest rate changes although not necessarily a mirror image of the variations. Your mortgage payments will therefore rise and fall with changes to the lenders Standard Variable rate changes. Most people will have a Standard Variable rate when they want to have no restrictions on their mortgage, although this could be a high price to pay for this freedom.

Tracker Rates

Unlike the Standard Variable rate, a Tracker Rate mortgage is designed to precisely ‘track’ the changes in the Bank of England base rate in terms of the amount and timing of the change. Lenders design products that will be either a certain percentage above or below the Bank Of England Base Rate for a specific term or for the life of the mortgage.  Tracker mortgages are often taken by people who would like a fairer approach to changes in their interest rate, rather than to be dependant on the Lenders decision to change their rates. Again this type of mortgage is variable and your mortgage payments will rise and fall with interest rate changes.

Discounted Rates

A discounted rated is where a lender has designed a product that provides you with an interest rate at a certain percentage discount below the lender Standard Variable rate for a limited period of time. Your payments will revert to the Standard Variable rate at the end of the discounted period, and therefore you payments will increase accordingly. Discounts are often taken by people that are expecting their incomes or financial position to improve in the future, but need lower payments to begin with.

Fixed Rates

A Fixed rate is where you opt to fix your mortgage payments for a certain period of time. It is a product that is favoured by those who require a period of time within which they need to budget, and where they cannot afford for their payments to increase as a result of interest rate increases. You can fix your rate for various periods of time.

Capped Rates

Capped rates are rates that are guaranteed to stay below a certain figure, the cap, for a limited period. The rate will vary in accordance with the Standard Variable rate changes below the cap. A capped rate is often used by people who feel they would like to benefit from potential interest rate reductions but without taking a gamble beyond their budget which should be calculated in accordance with the Capped rate.

Cashbacks

Cashbacks are mortgages where the lender provides you with an incentive of a cash sum on completion. Sounds very nice. These deals normally carry a proviso of a higher interest rate or a commitment for you to keep your mortgage with the lender for a set term to retain this cashback. It is normally first-time buyers that will opt for this mortgage who may require this cashback to put towards the furnishing of their home, where all their other liquid cash has been put towards the purchase of their home.

Watch out for Redemption Penalties and HLC’s and MIG’s!

What are we talking about? It is important that you are aware of any ‘Redemption’ penalties that apply. A Redemption penalty is charged when you want to repay some or all of your mortgage with a lender and there is normally a limited period where the Redemption penalty applies. Some products may seem attractive at first but then can become very unattractive if you have an extended Redemption penalty period.

A Higher Lending Charge (HLC) or Mortgage Indemnity Guarantee premium (MIG) is charge by some lenders. It is an Insurance premium that you pay to protect the lender from any losses that they make if they repossessed your property and were unable to recover their mortgage.  You must never rely on this as protection for yourself, as the Insurance company could take proceedings to recover losses from you.