Mortgage Guide
Capped
A variation on the fixed rate mortgage,
capped rate mortgages guarantee that your monthly payment
will never go above a set figure (or ‘cap’) within the time
period. Below that set figure, the rate will move up and
down in line with the lender’s SVR. This means you can be
certain of the maximum amount you will pay and may benefit
from lower rates as interest rate fluctuate.
Discount
This type of mortgage gives a discount on
the lenders standard variable rate for a specified period.
This means that whether the interest rate goes up or down,
you will always be paying a reduced rate for the length of
the deal.
If interest rates are falling these deals
can be very good news. Likewise, when rates rise you will
always be paying less than borrowers on the SVR.
Discount rates are worth considering if you
think the rate will average out below the fixed and capped
rate products in the market. Be warned, though, discounted
deals can have stringent redemption periods attached.
Tracker
These faithfully track, by a set percentage,
the Bank of England base rate. Every time that base rate
changes so will the payments on your mortgage this is fine
when rates are going down as they ensure you immediately
benefit from any savings, whether or not your lender has
decided to pass on the change by lowering its standard
variable interest rate. However, if interest rates to up,
then so will your payments and you could be paying above the
odds if your lender decides not to pass on the rate increase
to its other customers.
Flexible
Flexible mortgages can offer borrowers
greater control of their finances by calculating interest
daily and allowing the option of overpayments. Paying just a
few pounds extra each month you can pay back the capital of
your loan faster, considerably reducing the mortgage term
and saving you thousands in interest payments. Once you have
been paying the mortgage for a while, most flexible loans
allow you to make underpayments. Some lenders also offer a
cheque book or reserve account facility allowing you to draw
down on your overpayments or, if you have equity in the
property, to borrow more. While most flexible mortgages
follow the lender’s SVR, a growing number of lenders are now
offering special deals.
All-In-One Accounts
Current account and offset mortgages are the
big new thing in the mortgage world. They allow you to save
money by ‘offsetting’ the interest you pay be taking account
of your credit balances in your savings or current account
and using them to reduce your debt.
Below are a few tips while looking
for a mortgage.
1. Always look at long term value – what
looks great at the beginning of your mortgage may not
necessarily be the best deal in the long run
2. Try to avoid tie-ins, especially those
lasting longer than the deal period
3. Make sure you know what the early
redemption penalty will be if you do need to pay off your
mortgage early
4. Work out how much your repayments will be
if interest rates rise by as much as two or three percent.
Make sure you can afford any increase
5. There is competition for your business,
so shop around for the best deal
6. Many lenders offer reduced fees or even
fee-free deals – especially to first time buyers or
remortgage customers.
7. Flexible and current account mortgages
are only beneficial if you use the features
8. If in doubt, get professional advice –
you may have to pay for it but you could save that sum many
times over during the course of your mortgage.
Overview
of mortgages |
