 Types of Interest Rates
Variable Rate :
With a standard variable rate mortgage the interest rate rises and falls
(varies) according to changes in the UK Base rate. The UK Base rate is set by
the Bank of England and lenders can choose to alter their interest rates in
response to any movement in the UK Base rate. This type of interest rate is
often regarded as the least complex interest rate type and generally speaking
will have no early repayment charge if you decided to change to another lender or
interest rate type. The disadvantage of a variable rate is that generally a
more generous rate will be available as a fixed or discounted rate.
Fixed Rate :
With a fixed rate mortgage the rate of interest that you pay is fixed in advance
for a period of the mortgage term. Typically, the period of the fixed rate will
be between one and ten years dependent upon lenders products at the time. After
the fixed rate period the mortgage reverts to a variable rate for the remainder
of the term if no action is taken to select the same or another type of rate
which may be preferential. The advantage of a fixed rate mortgage is that it
allows you to budget accordingly and not worry about interest rate rises.
However, there are some potential disadvantages such as early repayment charges
within the fixed rate period if you wish to change lender and potentially if
interest rates fall the fixed rate monthly payments could be higher than a
variable or discounted mortgage rate.
Capped Rate :
With a capped rate mortgage you have the security of an upper limit, in terms of
the amount that the interest on your variable rate mortgage could rise to for a
period of time, typically, between one and five years. If the variable rate
falls your interest rate falls accordingly if the variable rate is below the
upper limit, i.e. the 'cap', The advantage of this type of interest rate is
that you have the security of knowing the highest level your repayments may be
during the capped period, whilst, knowing that if the variable rate falls and is
below the capped rate set at outset, your monthly repayments will also fall.
The disadvantages are generally the early repayment charge applicable during the
capped rate period, if you wish to change lender.
Discounted Rate :
With a discount rate mortgage you have at outset a set percentage discount on
the standard variable rate for a specified period of time, typically, between
one and five years. If interest rates fall your monthly repayments will fall,
however, if interest rates rise so will your monthly repayments. This type of
interest rate generally offers a low initial monthly repayment compared to the
variable rate, however, the disadvantage is that if interest rates rise so will
your monthly repayments. There will also generally be an early repayment
charge to
pay during the discounted rate period if you wish to change lender.
Base Rate Tracker :
With a base rate tracker mortgage, the rate of interest you pay is linked
entirely to the base rate set by the Bank of England. Generally the rate
payable will be set as a percentage above the base rate, the advantage being
that if the Bank of England reduces rates your monthly repayments will fall.
However, should the Bank of England increase interest rates then your monthly
repayments will also increase. There may also be an early repayment charge if you
wish to change lender during the rate period.
Flexible :
With a flexible mortgage you have the ability to vary the amount of your monthly
repayments, which could be both higher or lower than required or take a payment
holiday if you have built up a surplus on the account. This type of flexibility
can be incorporated into variable, fixed or capped rate products and is
generally seen as ideal for people who have fluctuating incomes. There may also
be a early repayment charge should you wish to change lender during the initial rate
period.
Cashback :
With a Cashback mortgage the mortgage lender will offer you a lump sum of money
at the time of the loan advance or sometimes during the term of your mortgage.
The monies can be spent as you wish, however, the disadvantage of a cashback is
that you will generally pay interest at the standard variable rate and an early
repayment charge will generally be payable should you wish to change lender
during the initial period. Cashback amounts can sometimes be linked to other
interest rate types such as fixed and discounted rates.
Before changing interest rate type or lender you should check if an
early repayment charge
will be applied to ensure you can make an informed decision before
taking any action.
We do not provide our full range of mortgage schemes online, due to the
complicated nature of mortgages we believe you need independent advice regarding
non-standard income multiples and other criteria which may effect you receiving
the most suitable mortgage scheme. Call or click on the 'Need Advice' link
above.'
Your home may be repossessed if you do not keep up repayments on your mortgage.
We can
either be paid commission by the lending institution or charge a fee for
Mortgage Advice. The amount of the fee will depend on your circumstances,
typically 0.5% of the loan amount.
| 
R.J.
Nash
Consultancy Ltd
