Interest Types
Aside from the method of repayment, the interest rate will be your most crucial factor in deciding which mortgage is right for you. Read on and you can learn about the main types of interest and how they could influence your mortgage decision.
Base Rate Tracker Mortgage
Base rate tracker mortgages UK are very similar to regular variable rate mortgages except that they are linked directly to the Bank of England base rate, and will follow it at a designated level above or below it, (usually above), for a certain period of time. With this type of mortgage therefore your repayments will vary according to the changes in rate.
Once your base rate tracker period has ended your interest level will generally return to the normal variable rate. It is worth noting that this type of mortgage usually carries with it a redemption penalty.
The advantage offered by the base rate tracker mortgage UK is that if the Base of England base rate falls, the tracker rate will follow it no matter how low it plunges. Naturally, however, should the base rate rise, you might find yourself with a mortgage that appears to be less attractive than others on the market.
Capped Rate Mortgage
The capped rate mortgage is a variable one, and therefore follows the lender’s standard variable rate as it oscillates up and down. The difference with capped rate mortgages UK is that they are guaranteed not to rise above a certain level which acts as a cut-off point, for a certain period of time (usually around five years, although commonly shorter or longer).
Capped rate mortgages UK offer certain obvious advantages, namely, that you will be protected should rates go sky high. However, with the capped rate mortgage it is important to look carefully into any additional fees and charges that you might be subjected to such as administration fees or redemption penalties that are applicable long after the capped period has ended.
Discounted Rate Mortgage
Discounted rate mortgages are fairly self-explanatory; with these the rate that you are charged is a discounted version of the standard variable rate for a certain period of time (usually up to five years). Once the discounted period is over, the rate will revert to the standard variable rate.
Discounted mortgages UK often offer the most favourable introductory APR and can be a good way of easing yourself into mortgage repayments. However, discounted rate mortgages often carry with them hefty redemption penalties so if you would like the freedom to switch mortgage providers mid-term make sure that you find out exactly how easy it is going to be to leave.
Fixed Rate Mortgage
Fixed rate mortgages UK do just what they say they do - offer the property buyer a fixed rate of interest for an agreed period of time. The fixed rate will offer you security as a mortgage borrower as you will know that your interest rate will not be subject to wild fluctuations. You will be able to make budgeting decisions with ease and will be protected should the Bank of England base rate rocket.
However, it could happen that whilst you are signed up to a fixed rate mortgage that economic changes cause the base rate to drop, leaving you saddled with a higher rate than you could be paying. For this reason it is important to look into the economic climate; if rates are at an all-time low then it could be a wise move to get yourself a fixed rate mortgage.
Fixed rate mortgages UK more often than not carry redemption penalties with them so if you are interested in a fixed rate mortgage then make sure you look into the various ways in which you will be bound to it.
Variable Rate Mortgage
The variable rate (also referred to as the standard variable rate) will rise and fall in conjunction with economic changes and alterations in the Bank of England base rate. Variable rate mortgages UK are fairly flexible and there are usually no real restrictions or ties such as redemption penalties. It is also very rare for fees such as application or arrangement charges to accompany the variable rate mortgage.
The disadvantages of variable rate mortgages UK are that you are at the mercy of the economic climate; your payments could alter quite dramatically over the course of your mortgage. Also, the variable rate mortgage does not make it easy to budget over a long period of time. However, borrowers opting for the variable rate mortgage can find themselves in a very favourable position in favourable economic times.
