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Mortgage types

Mortgage Types and Options


There are many different mortgage options available:

Fixed and Capped rates



A Fixed Rate allows you to fix the interest rate of your loan so that for a set period you have the reassurance of knowing that your repayments will not alter.

A Capped Rate fixes a upper ceiling to the interest rates so that in the event of rising interest rates you will not pay any more than the limit set by the cap. If rates fall below the cap then your repayments will reduce.

Fixed and Capped rate mortgages are most suitable to those who are working to a budget and need to know that their repayments will not exceed a set figure.

Variable and Tracker rates

Variable rates, as the name implies are not fixed and may change particularly if there has been a change in the Bank of England base rate

Variable rates may be linked to an external rate, for example the Bank of England base rate.

Variable rates may also be linked to LIBOR, the London Interbank Offered Rate. This is the commercial rate of lending as agreed by the main commercial banks in the UK

Discounted Rate mortgages allow a discount to the standard variable interest rate for a set period.

Linking to an external rate is generally regarded as a good thing in that it takes interest rate control away from the lender.

Variable rates that are set by the lender run the risk that lenders my decide that they need to increase their variable rates. We have seen evidence of this recently with many high street lenders increasing their variable rates to cope with the increased cost of borrowing

As an incentive to attract new clients some mortgage lenders may offer a lump sum cash back. These are obviously useful if cash is needed at the outset, however the opening interest rates may not be as attractive.

Flexible Mortgages



Flexible mortgages, also termed Australian mortgages have become increasingly popular in recent times. They enable the borrower to actively manage their mortgage perhaps by altering the monthly payments or by paying off lump sums. Other options include the facility to take payment holidays and to borrow further amounts.

Offset mortgages give a further degree of flexibility in offering a separate savings account that is linked to your mortgage account. The balance in the savings account is offset against your mortgage balance. The advantage is significant. Consider that any balance in your offset account will reduce the net mortgage on which you are charged interest.

the money in your offset account is effectively saving you interest at your mortgage interest rate. If you are paying mortgage interest at 6%, the balance in your offset account is effectively earning 6%. Now this would be a good interest rate but there is more...

Interest earned in a deposit account is taxable at your highest rate of interest. So 6%
after taxation at 40% is only earning you 3.6%. However interest saved by offsetting is not taxable, so you are effectively earning 6% net (or whatever your mortgage interest rate is)

Please contact us to discuss offset mortgages

Early repayment Charges



Early Repayment charges: To attract new borrowers, mortgage lenders may offer an introductory discount or some other incentive. This will invariably cost the lender money. To protect their investment the lender may impose early repayment charges should the borrower redeem their mortgage within a specified period. These charges are likely to apply during the first few years of a new mortgage.

Schemes may be available which exclude these charges.

Remortgage


Most people with an existing mortgage should consider remortgaging as part of a periodic review of their finances. Competition amongst mortgage lenders is fierce and the potential savings significant.

As part of a re-mortgage you may wish to raise finance for home improvements, to consolidate debts or for another purpose. Mortgages are available for capital raising.