Before you choose a specific deal, you may want to understand more about what types of mortgage are available.
This brief summary may help. The Common types of Mortgages are
Variable Rate Mortgage
Your monthly payment fluctuates in line with a Standard Variable Rate (SVR) of interest, set by the lender. You probably won’t get penalised if you decide to change lenders and you may be able to repay additional amounts without penalty too. Many lenders won’t offer their standard variable rate to new borrowers.
Tracker Rate Mortgage
Your monthly payment fluctuates in line with a rate that’s equal to, higher, or lower than a chosen Base Rate (usually the Bank of England Base Rate). The rate charged on the mortgage ‘tracks’ that rate, usually for a set period of two to three years. You may have to pay a penalty to leave your lender, especially during the tracker period. A tracker may suit you if you can afford to pay more when interest rates go up – and you’ll benefit when they go down. It’s not a good choice if your budget won’t stretch to higher monthly payments
Fixed Rate Mortgage
The rate stays the same, so your payments are set at acertain level for an agreed period. At the end of that period, the lender will usuallyswitch you onto its SVR (see Variable rate). You may have to pay a penalty to leaveyour lender, especially during the fixed rate period. A fixed rate mortgage makes budgeting much easier because your payments will stay the same – even if interest rates go up. However, it also means you won’t benefit if rates go down.
Discounted Rate Mortgage
Like a variable rate mortgage, your monthly payments can go up or down. However, you’ll get a discount on the lender’s SVR for a set period of time, after which you’ll usually switch to the full SVR. Discounted rate mortgages can give you a gentler start to your mortgage, at a time when money may be tight. However, you must be confident you can afford the payments when the discount ends and the rate increases.
Over recent years the government has backed a number of schemes – such as ‘Help to Buy’ – to support homebuyers. We can explain the details of these schemes and whether you can benefit from them.
These schemes allow you to overpay, underpay or even take a payment ‘holiday’. Any unpaid interest will be added to the outstanding mortgage; any overpayment will reduce it. Some have the facility to draw down additional funds to a pre-agreed limit.
Taking out an offset mortgage enables you to use your savings to reduce your mortgage balance and the interest you pay on it. For example, if you borrowed £200,000, but had £50,000 in savings, you would only be paying interest on £150,000. Offset mortgages are generally more expensive than standard deals, but can reduce your monthly payments, whilst still giving you access to your savings.
This article is intended to provide a general appreciation of the topic and it is not advice.
For more information please contact us on 01252 416516 or email [email protected] and we will be more than happy to assist you.
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Due to the uncertainty of the Brexit deal, buyers and sellers are putting their plans on hold. Similar to Theresa May, buyers and sellers are having difficulties getting the right deal.
We here at Peepal Mortgages share your concern and to bring light into the issue, have put together a concise guide for those of you looking to buy a property.