A fixed-rate mortgage is the most popular type of mortgage at the moment & has been for several years.
The interest rate is fixed for a pre-determined length of time; typically, this is either 2 or 5 years - however, fixed rates can come in 1,2,3,5,7 & 10 year periods. The longer the fix, the higher the rate as you’re buying more security.
The benefits of a fixed-rate mortgage are that you can budget easily as the mortgage payment won’t change for the length of time you’re in your initial deal. This gives our clients the security they want and allows them to get on with their life & not be worrying about what the mortgage payment will be next month.
Fixed-rate mortgages can often be a little more expensive than variable mortgages as you’re paying for the security you would like. However, they can also come with some benefits such as a free valuation &, in some circumstances, a cashback payment of up to £500 paid on completion.
After the initial fixed-rate period ends, you will typically revert to the lender SVR (standard variable rate), which will often be higher and is the lenders own profitable internal rate. So this is the point at which we would ordinarily contact clients to let them know they’re going to be paying more and then acting, by way of a remortgage, to stop this happening.
So to recap, if you choose a fixed-rate mortgage, your monthly payment will stay the same for a set period, usually two, three or five years. At the end of your fixed-rate, your lender will usually change your interest rate to their SVR. It is a good idea to talk to your adviser at this stage because the lender’s SVR may not be the best deal available.
Hopefully, that explains in enough detail what a fixed-rate mortgage is, and if you want any more information, then drop us an email or call, and we can talk through the options available.
Fixed rate mortgages are great for people that want stability and security
Tracker rate mortgages are mortgages that are not fixed at a certain interest rate. They typically move in line with one of two external rates, either the Bank of England base rate or LIBOR (London inter-bank offered rate).
Tracker rates for residential mortgages usually follow the Bank of England base rate (BBBR) and if the BBBR rises then typically the month after your mortgage rates rises by the same margin and if the BBBR falls again your mortgage interest rate would fall by the same margin.
Normally a tracker rate from the outset will be a specific amount above the BBBR so you might take out a mortgage which says your rate is BBBR + 1.5% for example. This means that the interest rate that you will pay over However it should be noted that most mortgage lenders do have a 'floor' contained within them. This means that at the outset of most tracker rate mortgages these days, lenders will say that your tracker rate will not fall below a certain level.
So to recap if you opt for a tracker mortgage, the interest rate charged by a lender is linked to a rate such as the Bank of England base rate. This means your payments may go up or down.
Hopefully that explains in enough detail what a tracker rate mortgage is and if you want anymore information then drop us an email or call and we can talk through the options available.
Tracker rates can be good for people that want flexibility with their mortgage
A standard variable rate is a mortgage lenders, internal mortgage interest rate. Mortgage lenders choose to set it where they wish and move it in line with the prevailing economic conditions. They sometimes mirror changes to the BBBR, but they don't have to.
The SVR is what most people will revert to after an initial mortgage deal such as a fixed rate or tracker rate period has ended.
This is a standard interest rate that can go up or down in line with market rates, such as the Bank of England's base rate.
Hopefully, that explains in enough detail what a standard variable rate mortgage is, and if you want any more information, then drop us an email or call. Then, we can talk through the options available.
SVR's are usually higher than your initial rate period and you'll move onto once that has expired.
Some mortgages start with an initial interest rate set lower than the SVR for a set period of time. At the end of this period, the lender will change the interest rate to the SVR. It is a good idea to talk to your adviser at this stage because the lender’s SVR may not be the best deal available.
Discount Variable Rates can be useful for certain types of mortgage borrowers
An offset mortgage is generally linked to a main current account and/or savings account held with the same lender. Each month, the amount you owe is reduced by the amount in these accounts before working out the interest due on the loan.
This means as your current account and saving balances go up, you pay less mortgage interest. As they go down, you pay more. Linked accounts used to reduce mortgage interest payments do not attract interest.
Offset mortgages can be particularly useful for people who like to save regularly
With this type of mortgage, the interest rate is linked to a lender’s SVR but with a guarantee that it will not go above a set level (called a ‘cap’) or below a certain level (called a ‘collar’) for a set period of time. It is possible to have a capped rate without a collar.
Cap & collar mortgages aren't seen very much anymore but it's still useful to know know about them
Terms & Conditions
Lewis Shaw (FCA registration number 927754) trading as Shaw Financial Services is an appointed representative of King Mortgages Ltd which is authorised & regulated by the Financial Conduct Authority, FCA registration number 803561.
There may be a fee for arranging a mortgage. This will typically be £499.
Think carefully about securing other debts against your home
Some forms of Buy To Let mortgages are not regulated by the Financial Conduct Authority. The guidance &/or advice contained in this website is subject to the UK regulatory regime and is therefore restricted to consumers in the UK. As with all insurance policies, conditions & exclusions will apply.
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