CREDIT CARD GUIDE
Fixed rate mortgage
If you choose a
fixed rate mortgage your monthly repayments will not change for the period of
the fixed rate, regardless of the interest rate in the market place. This may
be important to you if you have a limited budget as you are protected from rising
interest rates. However, if the variable rate falls below the fixed rate level,
your repayments will not fall. At the end of the fixed rate period your mortgage
will usually be converted to a variable rate.
A capped rate mortgage has a maximum interest rate for a given term. The interest
rate you pay cannot go higher than the agreed capped rate, thus you know the maximum
amount your monthly repayments could rise to. However, if the basic interest rate
falls below the capped rate, repayments will also reduce.
A discounted mortgage offers you reduced repayments for a given term. The lender
gives a discount off a variable rate. For example, the variable rate may be 5%
with a discount of 1% making your initial interest repayment rate 4%. If the variable
rate on which your discount rate is based falls, your repayments will fall. However,
if the lenders standard variable rate rises, so will your repayments. Whilst
a discounted rate may be helpful initially, you should consider how much your
repayments will be when the discounted period ends.
A 100% mortgage offers you a borrowing of 100% of the value of the property, i.e.
no deposit is required. Rates may be fixed, variable, discounted or capped. Opting
for a 100% mortgage means that you could risk facing a negative equity situation
if house prices fall. You may also be charged an above-average interest rate and
a mortgage indemnity premium.
Self-certification mortgages are available for contract workers and the self-employed.
The lender will ask for details of the borrowers income but they will not
require to see proof of total earnings. Other terms will depend upon the lenders
requirement at the time and in accord with the rates prevailing in the market
Variable rate Mortgage
A variable rate mortgage is one in which the amount you repay increases or decreases
in line with any interest rate changes. This means that you cannot predict the
monthly cost of the borrowing, which could cause financial concerns within the
Buy-to-let mortgages are provided for property purchase for investment in the
private rental sector. They are assessed as though they are ones for residential
occupation. Assessment of borrower affordability can be based on projected rental
income and/or earnings dependent on the lenders individual policy.
Current Account and Offset Mortgages
A current account mortgage allows you to operate your mortgage borrowing through
a current account. This method enables you to save interest as your normal cash
flow will alter the outstanding debt. You will be required to pay your salary
into the account.
An offset mortgage
allows you to keep your balances e.g. mortgage, savings, current account etc in
separate accounts but all balances are offset against each other thus allowing
the possibility of reducing the interest paid and could result in the mortgage
being repaid early.
Base Rate Tracker Mortgage
A base rate tracker mortgage will be based on the Bank of England base rate and
a possible loading for a set period or for the term of the loan. The rate payable
will alter in line with any change to the Bank of England base rate.
A cashback mortgage provides a cash rebate on completion of the purchase. The
sum is either a percentage of the advance or fixed. This cashback could help you
to cover some of the expenses of setting up home but, this bonus is often subject
to higher repayment rates and may include penalties for repaying the loan early.
The main feature of a flexible mortgage is the facility to make extra payments
when you have extra money. You may also be able to reduce monthly repayments or
even take repayment holidays, although you will normally have to build up a reserve
through making overpayments before this arrangement is allowed. Such mortgages
are usually offered on a daily interest basis. Flexible mortgages usually provide
a loan drawdown facility that allows you to borrow extra funds at a set predetermined