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What kind of mortgage is best for me?
Interest Rate options
- Standard variable rate
The rate generally goes up and down in line with the Bank of England
base-lending rate. Often lenders calculate the variable rate as
the base rate plus an additional percentage rate. The rate might
go up and down as soon as the base rate changes or less frequently,
e.g. once a year, reflecting interest rate changes during that
period.
Although the change is usually small increments (maybe 0.25 percentage
point), the change may have significant impact on your monthly
payments over time.
Loans with a standard variable rate usually have no completion
or booking fees and no penalties if you pay off or move the mortgage
early.
- Fixed rates.
The interest rate is fixed for an agreed period. The rate is typically
set for two to five years, although it may be anything between
six months and 25 years.
Unlike variable rates, fixed rates let you budget your monthly
home expenses with accuracy since you know how much you will have
to pay each month. You are also protected, during the set period,
from any increases in interest rates, although equally, you will
not benefit from falling rates. These will revert to SVR after the
initial period.
Lenders usually charge a booking fee to commit to a fixed rate
and penalties are incurred if the loan is paid off early, or within
the redemption penalty period which may exceed the fixed rate
period in some circumstances.
- Capped rates.
The rate has a guaranteed maximum, or cap, for a specific time
period. This will protect you from an unexpected rise in interest
rates.
Unlike a fixed rate, if the lender's variable rate falls below
the cap, you will benefit because your rate will decrease too,
and if interest rates rise, you will not be charged more than
the capped rate.
Lenders will normally set a higher capped rate than their best
fixed rate alternative at that time.
- Discounted interest rate.
The lender can guarantee a discount,
off their SVR. This means the interest you pay will still
vary up or down but at a lower rate than the general interest
rate. Normally, this is for a set number of years. Once this period
has expired, your mortgage will revert to the normal variable
interest rate.
- Tracker rate.
These are similar to discounter rates except they exactly mirror the
Bank of England base rate rather than the lenders SVR.
- Capital Repayment
There are two ways of re-paying capital:
Monthly repayment: Paying off capital
as you go
Investment: Using an investment to
pay off the mortgage at the end of the term. Either an endowment
or ISA portfolio.
The only way to guarantee that you will be able to pay off the
mortgage at the end of the term is with a Repayment mortgage.
ISAs are more tax efficient than endowments, with lower charges
and pay lower commissions, but you should buy a separate life
insurance policy if needed.
For a 25 year mortgage for an investment oriented person is normally
an ISA mortgage with either a floating interest rate, or one fixed
for the first few years.
The following types of mortgage are becoming increasingly popular:
Flexible mortgages
If you expect to use bonuses or commissions for mortgage payments,
or your financial circumstances vary and you want to change monthly
payments from time to time, look for flexible, or no redemption
penalty period mortgages and loans with daily interest rate calculations.
These also include offset facilities.
Self-certification
These have become more and more common. Where you are unable
to meet the usual requirements for proof of income, you specify your
income. The downside is that this will often
cost you a higher interest rate, and you may not be able to borrow
as large a proportion of the property's value as you would with
a conventional loan. We can help you to find the best deal and
often at no higher rate
- Which one is right for me?
We can tallk you through the right one for you. Call 0800
8760293, or use our free, no obligation Mortgage
Finder service
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Special Features
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Emergency Mortgages:
need a mortgage fast, call 0800 3898361
9am to 9pm.
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