INTEREST RATE DEALS

There are many different mortgage lenders in the UK and each will offer different interest rates and different types of deals.

Some deals will offer what seem like cheap monthly payments, but these are only for a certain time after which monthly payments may increase considerably. In this situation you have to make sure you can afford such a rise in your monthly payments.

In fact what may seem to be an expensive mortgage initially may turn out to be a cheaper deal in the long run or have other terms, which will be more suited to your particular situation.

Cash Back Mortgage

Sometimes as part of a Standard Variable Rate deal you can receive a cash back payment of typically 3% to 5% of the loan value.

Fixed Rate Mortgage

A fixed interest rate mortgage will mean your payments will be set at the same amount every month for a specific period of time such as 2 years, 5 years or 10 years at the start of the loan. After the initial fixed mortgage rate period your interest rate would change to the lenders Standard Variable Rate and your monthly repayment would be more.

Fixed rate mortgages can be a very attractive proposition, as you know exactly what your payments will be for your chosen number of years. This allows you to budget your finances a lot easier as your major outgoing each month does not change.

Discounted Rate Mortgage

A discounted interest rate mortgage is a variable rate mortgage where the interest rate is set at a number of percentage points below than the lender’s SVR for a specific number of years. For example if the SVR is 7% then the discounted rate might be 2 percentage points lower at 5%.

Standard Variable Rate Mortgage (SVR)

This is a variable rate loan where your interest rate and therefore your monthly payments are linked to your lenders normal variable rate, which will go up and down usually as the Bank of England base rate varies. SVRs will be higher than any of the lender’s fixed or discounted rates.

Base Rate Tracker Mortgage

Another variable rate home loan, which tracks a base rate such as the Bank of England’s and moves up or down as the base rate moves. The tracker rate is usually always a fixed percentage above or below the rate it is tracking.

For example it could be 1% above the Bank of England base rate and in this case if the Bank of England base rate were 5% the tracker rate would be 6%.

Capped Rate Mortgage

A capped interest rate mortgage has variable payments sometimes linked to a base rate but set not to go above a fixed level called the cap or ceiling for a specific number of years at the start of the mortgage, after which the lender’s SVR would apply.

The advantage of this type of mortgage is that if interest fall then your payments reduce but that if they rise then your payments can only increase to the preset level, which is good for budgeting ahead.

Collared Rate Mortgage

A collared interest rate mortgage is used with a capped or tracker rate to ensure that your variable payments cannot fall below a preset value referred to as the ‘floor’ or ‘collar’.