There are a variety of mortgage rates available, here we will outline them, explain what they are and help you understand the pros and cons of each.
The interest rate is fixed for a period of time. After this initial period it reverts to the lender’s Standard Variable Rate.
Advantages:
Ability to budget – you know what you will be paying each month for the initial period.
Disadvantages:
Fixed only for an initial period, not the whole mortgage term. If interest rates fall, you could end up paying more than necessary. An arrangement fee may apply and an Early Repayment Charge may be applied if the loan is paid off before a specified date.
The interest rate on your mortgage moves up and down with a particular base rate, such as the Bank of England base rate.
Advantages:
When the index (for example the Bank of England base rate) falls, so will your monthly payment.
Disadvantages:
If the index goes up, so do your monthly payments. Often a minimum percentage is specified. An arrangement fee may apply and Early Repayment Charge may be applied if the loan is redeemed before a specified date. This means it is less easy to budget than with a fixed rate mortgage.
With a Discounted Rate Mortgage the mortgage interest rate is reduced by a specified amount for a set period. After this set period, the mortgage reverts to the lender’s Standard Variable Rate.
Advantages:
When the lender’s Standard Variable Rate falls, so do your monthly payments and it can provide lower monthly mortgage payments at the start of the mortgage.
Disadvantages:
An arrangement fee may apply and an Early Repayment Charge may be applied if the loan is redeemed before a specified date. This means it is less easy to budget than with a fixed rate mortgage. When the lender’s Standard Variable Rate rises, so do your monthly payments.
An offset mortgage links your savings or your current account to your mortgage. Interest is calculated on the difference between savings and the mortgage rather than the whole mortgage amount.
Advantages:
Interest is only charged on the mortgage balance outstanding once the savings balance has been deducted.
Disadvantages:
Interest rates can be higher than equivalent non offset products.
This is the normal rate charged by the lender without any discounts or special deals. It can be changed by the lender in line with market conditions. This is usually the interest rate that a lender will revert to once the initial deal has finished.
Advantages:
Often no Early Repayment Charges or arrangement fee.
Disadvantages:
Often higher rate than fixed/ tracker/ discounted mortgages.
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This is what your monthly payment will approximately look like based on the information you have input.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENT ON YOUR MORTGAGE.
