Rate types
Fixed rate mortgages
The advantage of a Fixed Rate mortgage is from a budgeting perspective. The rate you pay stays exactly the same for a certain period, whatever happens to interest rates generally - so you'll know exactly how much your mortgage payments will be each month. Fixed rate mortgages therefore remain the most popular choice for first time buyers.
When choosing a Fixed Rate mortgage it is important to remember that, should general interest rates fall during the time of your fixed rate, you will not benefit from this decrease until the end of your Fixed Rate period.
There are a massive variety of Fixed Rates on the market, generally lasting between 2 and 5 years, although longer term rates are also available. After the fixed rate period, most mortgages would revert to the lenders Standard Variable Rate, and often allow you to move your mortgage without penalty to another lender - the ideal time to speak to your adviser about a remortgage.
The main advantages of a Fixed Rate -
Variable Rate Mortgages
In contrast to Fixed Rate mortgages, Variable Rates rise and fall in accordance with fluctuations in mortgage rates, so continuing to offer you a competitive deal in line with current market conditions.
When choosing a Variable Rate mortgage it is important to remember that interest rates can increase as well as fall, and that your mortgage payment will rise or fall accordingly.
There are several different types of Variable Rate mortgages, as follows -
Tracker Rates
Your interest rate is set at an amount above or below the Bank of England Base Rate. If the Base Rate rises your rate will rise, and when it falls your mortgage payment will decrease.
Because Trackers are linked to be base rate you are not dependant on the whim of the lender in changing rates - your rate changes immediately in line with changes in the Base Rate.
Tracker Rates are available for set periods of time, such as 2 or 5 years, or for the lifetime of the loan.
Standard Variable Rate mortgages
A variable rate mortgage is a loan at the lenders normal (standard variable) rate - without any discounts or deals.
The Standard Variable rate is generally affected by movement within the Bank of England's Base Rate, but is not guaranteed to change at the same time as the Base Rate does.
The advantage of a Standard Variable Rate mortgage is that it gives you the freedom to change mortgage provider or to redeem your mortgage at any time without redemption penalties.
Discounted Rate Mortgages
A Discounted Rate mortgage has an interest rate where a discount has been applied to the lenders Standard Variable Rate for a set period - usually 2, 3 or 5 years. As the lenders Standard Variable Rate moves up or down the Discounted Rate moves up or down by the same amount.
At the end of the discounted period you mortgage payments will increase as your rate reverts to the lenders Standard Variable Rate - an ideal time to speak with your adviser about a remortgage.
The main advantages of Variable Rate mortgages are -
Capped Rates
Capped rates are often linked to the Bank of England Base Rate or the lenders Standard Variable Rate, rises and falls in accordance with changes in this rate. However the "Cap" ensures that the rate will not rise above a certain level for a set period, typically between 2 and 5 years.
The main advantages of Capped Rate mortgages are -
