Understanding Mortgages

Purchasing a new home can be both time consuming and costly which is why it is essential to seek expert advice before making a commitment. Our experts are here to talk you through your options. There are mortgages available to suit all different lifestyles and circumstances. Continue reading to learn more.

Fixed rate – With a fixed rate it stays, of course, the same. This means that your payments will adhere to a fixed level for a particular period of time. Once that period is over, the lender may shift to a variable rate. If you’re leaving your lender, a penalty will have to paid, specifically if this is during the fixed period. Budgeting with a fixed rate is much easier for a mortgage since the payments don’t change despite the fluctuation in interest rates. The downside is that there’s no benefit if the rates fall.

Variable rate – You’re expected to make monthly payments. The rate is subject to fluctuation according to the Standard Variable Rate (SVR) of interest. The lender determines the Standard Variable Rate (SVR) of interest. You can change your lender if you want to—there won’t be any penalties involved. This might also enable you to repay extra amounts exempt from the penalty. This is because lenders don’t offer new borrowers their standard variable rate.

Tracker rate – Your monthly payment is subject to fluctuation, but in accordance with a rate that is equal, higher, or lower than the Bank of England Base Rate or the chosen Base Rate. Usually, for a predetermined period of 2–3 years, this chosen base rate is tracked by the rate that’s charged on the mortgage. If you leave your lender, you’ll have to pay the lender; particularly if it’s the tracker period. If you’re able to pay a greater sum when the interest rates are higher, you should go with a tracker. This way you can benefit from the situation when the rates fall again. However, if you don’t expect your budget to increase, this is not a wise choice.

Discounted rate – Similar to variable mortgages, monthly payments for discounted rate mortgages many increase or decrease. There is, however, the discount on the variable rate for a particular period of time, determined by the lender. Once this period is over, you’ll have to make a full shift to the SVR. With discounted rate mortgages, you have a smoother start, especially if you’re facing a cash crunch. The one thing that you need to keep in mind is that you’ll be able to pay the increased rate payments later on.

 

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