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Variable Mortgage
Discounted Variable Mortgage Lenders will often offer initial discounts off their normal lending rate. The discount can often be quite large and can last for any time between one to four years. At the end of the discounted period the mortgage returns to the lenders variable rates. As only the discount is guaranteed, any increase in the standard variable rate will also increase the payment. It is likely that there will be a redemption penalty at least during the term of the discount. Fixed Rate Mortgage As the title tells you, a fixed rate mortgage is one that fixes the rate at a certain figure for an agreed length of time. Therefore during the term of the fix payments to the lender can neither increase or decrease. At the end of the fixed rate period you will normally revert to the lenders variable rate. This has the major advantage of allowing you to understand where you are at any time during the fixed rate and budget accordingly, however drawbacks include the fact that if interest rates go down during the term of the fixed rate period you may find yourself paying more than you had if you had taken a standard variable mortgage. In addition fixed rate mortgages are often set at a higher rates than certainly discounted variable rates. There are also likely to be penalties for early redemption and sometimes for redemption outside of the term of the fixed rate. Capped Rate Mortgage With a capped rate mortgage the level is set above which your rate cannot rise during the term of the cap. Therefore you will pay a rate that cannot increase however should the standard variable rate decrease below that at which your cap is set, your payments will decrease. This facility can give you the best of a number of worlds however recent times have seen lenders not keen to offer competitive capped rates. Again there will normally be penalties to pay for early redemption. Cash Back Mortgages This type of mortgage has become popular with first time buyers and allows you to budget for the expenses of moving much more comfortably. The level of cash back will be determined by the individual lender however cash backs of 6 and 7% of the total amount borrowed are not unusual. Whilst this cash back can be extremely useful there are often downsides, normally cash back rates are set at a higher level than even standard variable rates and there are almost certainly going to be penalties if you move lenders. The term that this penalty applies to can often be restrictive. Base Rate Tracker Mortgage These are a fairly new addition; the tracker mortgage has been designed due to the increasing pressure to keep costs down and to ensure clarity and honesty from the lenders. These mortgages track the Bank of England base rate and whilst they are similar in operation to standard variable rates, they are more flexible in that there are often no redemption penalties applicable to them and the cost of arranging these mortgages is often lower than some others. In addition they have also jumped on the CAT standard campaign, which ensures that they are easier to understand and are more cost effective. Features will include daily interest calculations, the ability to under and over pay (under certain circumstances), no redemption penalties as well as with a few lenders, the possibility of tying the mortgage in to a bank account arrangement. All in all this is not always a particularly complicated area however there are a wide variety of schemes available from a large number of lenders and as such professional advice should always be sought. |
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With this facility you pay at whatever the standard variable rate of your lender is at the time. If the standard rate increases, then your monthly interest payments will also increase. Likewise, if they decrease so will your payments. There is usually no penalty attached to any early redemption of this facility.