Mortgages

There are many different kinds of mortgage. Here are some of the main types:

Variable or floating rate

The interest rate you pay is likely to fluctuate roughly in line with the movement of the Bank of England Base Rate. There are also a number of different methods of interest charging adopted by lenders and some can work out significantly cheaper than others over a period of time. Often there are more attractive options available to you than the variable rate.

Fixed rate

As the name would suggest, the interest rate applied is fixed for a specified period of time, which could range from one to twenty five years, but terms of up to five years are most likely. With a fixed rate, there are no upward or downward movements, allowing for easy and predictable budgeting. At the end of the fixed rate period, the rate normally reverts to the lender's standard variable rate.

Capped rate

In this example, there is a maximum rate set at outset, for a specified period of time, but there is no minimum.Therefore this provides the same easy and predictable budgeting as a fixed rate, but with the possibility that the rate will reduce should mortgage rates move significantly downwards.The initial rate tends to be slightly higher than fixed rates of a comparable term.

Discounts

There are many different types of discounted mortgages, but broadly speaking, they will allow a specified reduction for a specified period of time from a 'benchmark' rate (eg variable or Bank Base Rate). The payment will typically be lower than most fixed or capped rates of comparable terms.The risk is that if the benchmark rate increases, so does the rate you pay. However, the reverse also applies, which might work to your advantage in a falling interest rate environment.

Cashback

In many ways a similar concept to discounted mortgages, but instead of giving a discount for a specified term, the lender will give you a lump sum up front, usually upon completion. The mortgage will then be charged at a variable rate, but there will be penalties for early repayment or redemption.

Flexible mortgages

These provide you with the ability to increase your mortgage payments when you can afford to, hence repaying your loan more quickly, often leading to significant interest savings. You can take payment holidays should you wish - perhaps to fund a holiday, or withdraw additional money to buy a car. They often use daily interest calculation which is fairer for you and sometimes include other options. Beware, some are more flexible than others. On the whole, flexible mortgages are becoming more competitive and are increasing in popularity with borrowers.

Base rate trackers

Over the last few years we have seen the introduction of mortgage rates being linked to the Bank Base Rate (BBR). This is typically set at a specified amount above the BBR, it however can sometimes include an introductory discount in the same way as a discounted mortgage. The main benefit is that when the BBR falls, the interest rate charge on the mortgage must be immediately altered to reflect this and payments will decrease. However, the opposite is also true and interest rates will rise with any BBR increases, therefore increasing your payments.

Redemption penalties

Some of the special mortgages on offer can appear too good to be true. It often follows that when this is the case, although the overall proposition is a sound one, there may be penalties applied should you wish to repay or redeem your mortgage early. If this does not suit your needs, professional guidance could ensure that you receive at least some of the benefits, but with smaller penalties, or none at all.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Sampson and Co, 56 Highstreet, Normanton, West Yorkshire WF6 2AQ.

Tel: 01924 898791
info@sampsonandco.co.uk
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