The mortgage marketplace can be a very confusing place. It is very important when you decide which mortgage is going to be the most suitable for you that you take advice. Your own personal circumstances will dictate which one is the best for you; what suits your friends and family isn’t necessarily what will be the best for you.
Buying a home for most people is the single biggest financial commitment they will make during their lifetime. This means choosing the most suitable type of mortgage is crucial to your future financial health. What follows is a brief overview of five different types of mortgages available on the market at the moment.Tracker Mortgages
Tracker mortgages do exactly that: track an externally controlled rate. This rate could either be the Bank of England Base rate, European Central Bank Base Rate or LIBOR (London Inter Bank Offer Rate). Your rate is normally a margin above or below this external rate and as such any rate increases or decreases are passed on to you. This is particularly advantageous when rates are falling although the reverse is true when rates are rising.
These types of loans typically have arrangement fees attached to set up, although this varies from lender to lender.Standard Variable Rates
This rate is set by the individual lender and varies greatly across the marketplace. As a rule of thumb Building Societies generally charge lower rates due to the way they raise money as opposed to High Street Banks.
Whilst the individual lender sets this rate it is normally linked to the Bank of England’s base lender's rate. An increase or decrease in this will normally lead to a respective change in the lenders rate. However as the rate is determined by the lender, they do not have to pass on any decreases to you immediately or in full. However in general any increases tend to be done in full and straight away.Discounted Rates
The lender offers a true initial discount for a given period. At the end of the discounted period the rate normally reverts to the lender's standard variable rate. No interest is deferred so the outstanding mortgage will not increase.
This has the same advantages and disadvantages of the Standard Variable Rate above as this is what it is linked to.Fixed Rates
The monthly payment is fixed over an agreed period of time and will remain the same regardless of whether interest rates fall or rise. Obviously at a time of rate increases this is a distinct advantage and likewise a disadvantage when rates are falling.
At the end of the fixed rate period the interest rate will revert to the lender's standard variable rate or you may be offered the choice of another product. There are normally setting up or booking fees associated with this type of mortgage.Capped Rates
The interest rate is guaranteed not to go above a certain level throughout the capped rate period, which can be from one to ten years, but you will benefit from any reductions in interest rates. This can sometimes be incorporated with a ‘collared’ rate where the rate has a level that it won’t fall below.Contact us for a free chat about you mortgage requirements.
