Variable
-
this is set at the lender's standard variable rate (SVR) and will generally
vary with Bank of England Base Interest Rate movements. There are no
Early Repayment Charges applying if the mortgage is redeemed.
Potential Use: - the borrower does not want any
penalties should they have to redeem the mortgage in the near future
thus providing flexibility
Discounted
Variable -
this is the lender's standard variable rate (SVR) less a set amount
for a fixed period of time e.g. 6% -1.5% for two years. The SVR can
vary; therefore monthly repayments during the discounted payment can
also vary. There are normally Early Repayment Charges applying during
the discounted period if the mortgage is redeemed.
Potential Use: - the borrower does not expect
interest rates to rise sharply and may indeed expect them to fall during
the period of discount and is aware that a redemption penalty may also
be applicable during this period
Tracker
-
this is similar to the Discounted Variable, but the rate is normally
the Bank of England Base Interest Rate plus a set amount or premium
for a period of time e.g. 4% + 0.75% for two years. This type of mortgage
tends to move up or down as soon as the Bank of England Base Interest
Rate is raised or lowered. There are normally Early Repayment Charges
applying during the tracking period if the mortgage is redeemed.
Potential Use: - same as Discounted Variable,
but may be looking to take advantage of quick changes to the rate particularly
if the borrower expects rates to fall
Stepped
-
this is the same as Discounted Variable or Tracker with the difference
being that the discount or premium changes in favour of the lender at
set intervals during the special rate period. There are normally Early
Repayment Charges applying during the discounted or tracker period if
the mortgage is redeemed.
Potential Use: - the borrower is expecting annual
increases in income and wishes to begin the repayments particularly
low to reduce outgoings in the first year. They are also confident that
they will be able to cope with the increase in monthly payments after
the set intervals whilst bearing in mind that the rate can vary
Capped
-
this is a variable rate mortgage which gurantees the interest rate charged
will not rise above a certain level, but may fall in line with variable
rates. There are normally Early Repayment Charges applying during the
capped period if the mortgage is redeemed.
Potential Use: - the borrower wants the advantage
of a discounted rate, but knows that in the event of interest rates
rising, they can only rise to a certain amount
Fixed
-
this is when the interest rate is fixed at a level lower than the lender's
standard variable rate for a fixed period of time normally 2,3 or 5
years although longer periods can be obtained. There are normally Early
Repayment Charges applying during the fixed period if the mortgage is
redeemed.
Potential Use: - the borrower wants to know exactly
how much they will be paying each month particularly useful for people
on a budget
Offset/Current
Account -
this is generally offered on the lender's standard variable rate and
uses the interest normally accrued on savings or positive balances on
a current account to reduce the interest charged on the borrower's mortgage
account. There are generally no Early Repayment Charges for redeeming
the mortgage and some providers of such mortgages have a lower standard
variable rates on these products.
Potential Use: - the borrower has a sizeable amount
of savings, which they wish to retain access to, but are happy not to
earn any interest on in the meantime. They can also be tax-efficient
for higher rate taxpayers as the interest that would normally be earned
would be taxed at the higher rate, but is instead being used to reduce
the mortgage repayments or term
