Types of mortgage

Grey & co -Types of mortgage

Like all interest rates, mortgage rates can go up as well as down, and each change will make your monthly mortgage repayments fluctuate. Most lenders instead of charging interest at the Standard Variable Rate (SVR) may offer various options to help you stay in control.

Standard Variable Rate Mortgage

Monthly mortgage repayments can go up and down in accordance with changes in the Lenders interest rate. Mortgage interest rates tend to move in line with the base rate set by The Bank of England.

Base Rate Tracker Mortgage

Similar to the Standard Variable Rate Mortgage however the rate guaranteed to be a set amount/percentage above The Bank of England Base Rate, this will immediately alter once the base rate is changed.

Fixed Rate Mortgage

With this type of mortgage your interest rate is fixed for a stated period. This can be extremely useful for budgeting as your monthly mortgage payments are effectively ‘frozen’ for the fixed rate period. Please remember that fixed rate loans often have redemption penalties attached to them if the mortgage is redeemed during or even after the fixed rate period. You should also note that if interest rates fall below your fixed rate during the fixed period, you would continue to pay the higher monthly payments.

Discounted Rate Mortgage

With this type of mortgage the lender will offer a discount off their standard variable rate for a stated period. This is a good method of keeping monthly repayments in the initial years of your mortgage. With a discounted rate mortgage there may be financial penalties if the mortgage is redeemed early. Please note that the discount is for a limited period only. The lenders standard variable rate on which the discount is based may rise or fall and allowances should be made for this in future budgeting.

Capped Rate Mortgage

With a capped rate mortgage although monthly repayments fluctuate they will not exceed an agreed limit. Once this limit has been reached, if mortgage interest rates increase your repayments will remain static. If mortgage interest rates fall so will your repayments. A variation to this mortgage is to include a ‘collar’, an agreed rate below which your mortgage interest rate cannot fall. Please note that at the end of the capped rate period the interest charged will be the lenders standard variable rate. This rate could be higher than the capped rate.

Cashback Mortgage

The lender will offer a cash incentive to new borrowers. In some cases this sum can be quite large and can be used in any way you wish e.g. new carpets, new kitchen, etc. etc. Although care should be taken to ensure that you are aware when the cashback will be made, upon completion or a set period after?

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