There are a variety of different types of rates available. The rate will normally last for a given period from one year to the lifetime of the mortgage. Usually at the end of the rate, if you still owe any money on your mortgage your mortgage payments will revert to the lenders standard variable rate.
By switching rates during the term of the mortgage it is possible that during the lifetime of a mortgage a borrower can end up using different deals at different times and possibly even use a variety of lenders.
There are, in reality, four main types of mortgage rates, which are as follows:-
STANDARD VARIABLE RATE
The Standard Variable Rate or the SVR as it is commonly known is a lender’s ordinary main rate for lending money and is the simple option offered to all borrowers. As the name indicates the rate is variable, which means as the lender changes its rate so your mortgage payments will also alter.
An increase in SVR will lead to an increase in your mortgage payments whilst, a decrease will mean a drop in your costs.
DISCOUNT RATES
Discount rates are linked to a lender’s SVR, but they are a pre-determined percentage rate below the SVR. Again it means that the monthly mortgage payments are variable and alter as the SVR alters.
TRACKER RATES
Tracker rates are linked to the Bank of England Base Rate. The Bank of England Base Rate is the rate that it charges on money it lends to other institutions.
Tracker rates follow the Bank of England Base Rate and are either a set percentage above or below the Base Rate. This rate is again variable as the Bank of England varies its Base Rate so the Tracker Rate alters, thus altering your monthly payments.
FIXED RATE
A fixed rate is set in stone and remains unaltered for a specified period, irrespective of what happens to the lenders SVR or the Bank of England’s Base Rate. This rate has the security that you know exactly how much you will be paying for a specified period. The downside is that if a high fixed rate is being charged, should mortgage rates generally decrease you could find yourself paying more for a fixed rate than for the lenders SVR.
All the above mortgage rates come with different caveats, some have early redemption penalties, which means you must pay the lender a penalty if you wish to change your mortgage rate. Many come with arrangement fees, which means you must pay the lender to set the mortgage up. You may also be required to pay a valuation fee to arrange for the lender to value your property and it will probably be necessary to instruct a solicitor who you may also need to pay.
By establishing your exact requirements we are able to recommend a mortgage rate that suits your needs. In addition, to discussing all the associated costs we will also confirm in writing why we have suggested a particular mortgage lender.
To speak to an Independent Mortgage Adviser free of charge and without obligation please contact us or telephone on 01376 529800.
Calculate your mortgage payments with the free FSA mortgage calculator.
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