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A mortgage is a loan secured on your property and therefore the lender has the security of knowing that in the event of serious default in payments, they could sell your property to pay off the outstanding debt. Mortgages are generally much cheaper than most types of loans.
There are many types of mortgage available on the market today. Some of them are:
BASE RATE TRACKERS
Within the last couple of years we have seen the introduction of mortgage rates being linked to the Bank Base Rate (BBR). This is typically set a specified amount above the BBR, however this can sometimes include an introductory discount in the same way as a discounted mortgage. The main benefit is that when BBR falls, the interest rate charge on the mortgage must also fall and this is reflected in your decreased monthly payments. But if the interest rates rise with any BBR increases, then your monthly mortgage payment will increase also.
CAPPED RATE
A maximum rate is set for a specified period of time, but there is no minimum. Therefore this provides the same easy and predictable budgeting as a fixed rate, there is a possibility that the rate will reduce if the mortgage rates move significantly downwards. So the initial rate tends to be slightly higher than fixed rates of a comparable term.
CASHBACK
This is a similar concept to discounted mortgages, but instead of giving discount for a specified term, the lender will give you a lump sum up front, usually upon completion. The mortgage is then charged at a variable rate, but there will be penalties for early repayments on redemption.
DISCOUNTS
There are various discount mortgages available on the market. They will allow a specified reduction for a specified period of time from a ‘benchmark’ rate (e.g. variable or BBR). The payment is usually lower than most fixed or capped rates of comparable terms. The risks can be when the benchmark rate increases, so does the rate you pay. However, the opposite also applies, which could work to your advantage in a falling interest rate environment.
FIXED RATE
The interest rate applied is fixed for a specified period of time, which could range from one to twenty five years, but terms of up to five years are most likely. With a fixed rate, there are no upward or downward movements, allowing for easy and predictable budgeting. At the end of the fixed rate period, the rate normally reverts to the lender’s standard variable rate.
FLEXIBLE MORTGAGES
They enable you to increase your mortgage payments when you can afford to, hence repaying your loan quicker, over a shorter period of time. This often leads to significant interest savings. You have options with a flex mortgage to take payment holidays to fund a holiday, or withdraw additional money to buy a car. A daily interest is calculated sometimes other options are available. Flexible mortgages are becoming more competitive and are increasingly in popularity with borrowers. For more information regarding a Flex Mortgage contact one of our qualified mortgage advisers.
VARIABLE OR FLOATING RATE
Interest rates you pay are likely to fluctuate roughly in line with movements in the Bank of England Base Rate. There are a number of different methods of interest charging adopted by lenders and some of these can work out significantly cheaper than others. Often there are more attractive options available to you than the variable rate.
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