|
Mortgage Product Guide!
STANDARD VARIABLE RATE (SVR)
This is the Lender’s basic underlying interest rate that you would
normally pay if you did not have a new scheme with them. Customers
seldom apply for the SVR as it is usually higher than the special
mortgage rates that the Lenders advertise. However when your
initial mortgage product comes to an end your mortgage will be
transferred onto the SVR for the rest of the mortgage term.
For example if you initially arranged a 3 year fixed rate mortgage
at a preferential mortgage rate, at the end of the third year you
would be automatically placed back on the lenders rate for the rest of
your mortgage term (unless you do something about it).
Advantages & disadvantages
The main advantage of the SVR rate is that it has no tie in periods
or penalties should you wish to repay your mortgage in full or sell
your property. Traditionally it would be a higher interest rate than
the Lender’s normal products, but it can be lower and has been
through much of 2009. The disadvantages are that it is a variable
rate that the lender can change at any time. It is not linked to
the Bank of England rate so the lender can increase their SVR to
widen their margins whenever they want, and many customers do not
know if their Lender’s new rate is reasonable.
You will incur an early repayment charge if you repay your
mortgage within the initial period.
FIXED RATE MORTGAGES
A fixed rate mortgage has the mortgage interest rate set at a
specific interest rate for an initial period of time. The fixed
rate may be 4.5% fixed for five years for example. This gives
you peace of mind knowing that your monthly payment will not change;
it is not dependent upon the Bank of England base rate.
At the end of the fixed rate period you would change back to the
Lenders SVR rate, but many customers choose to arrange another
mortgage with us for another fixed rate period.
Advantages & disadvantages
It provides customers with the security of knowing exactly how
much they will be paying for a set period of time. The interest
rates are also often very competitive as lenders try to attract
business based on their headline rates. The main disadvantage
is that if interest rates were to fall you would not benefit as
your rate would be fixed and not change.
You will incur an early repayment charge if you repay your
mortgage within the initial period.
FLEXIBLE MORTGAGE
These enable you to overpay, underpay, take payment holidays
and borrow back. The product can be Fixed or Variable. If you
think you may want to overpay,
perhaps because your income includes large bonuses, then this
could be the type of mortgage for you.
Some of these mortgages also allow you to “offset” your current
account balance or savings against your mortgage debt. For example
if you had a £100,000 mortgage with a current account with a
balance of £3000, then you would only be charged interest on the
£97,000 outstanding balance. This calculation is usually done
daily. Clearly if you had a large savings account this could
reduce your mortgage interest considerably. Please consider
what savings and current account balances you normally retain
and mention these to our adviser if you think this could be
important.
Advantages & disadvantages
There are lots of additional options if you have a healthy
financial position. You can offset your savings from your
mortgage balance without committing these funds completely to
your house purchase. The main disadvantage is that these
mortgages do not attract as low an interest rate as other
mortgage products, and they only really benefit you if you
have the extra savings or monthly cash to take advantage of
their flexibility.
You will incur an early repayment charge if you repay your
mortgage within the initial period.
DISCOUNT MORTGAGES
These mortgage products have a discount off the lenders
SVR rate for a set period, ie 1% discount for 3 years.
After this period you will transfer back on to the lenders
SVR rate. This type of mortgage will fluctuate up and down
following the lender’s SVR. Be aware the rate will increase
as the discount comes to an end; these products are generally
used for keeping your payments low at the beginning of your
mortgage.
Advantages & disadvantages
Discounted mortgage rates are often amongst the cheapest
option for clients when we research Lender’s mortgage rates
and this makes them very attractive. The main disadvantage
is that the mortgage rate can increase at any time and it
is important that you check that you could afford the
monthly payments if the mortgage rate increased.
You will incur an early repayment charge if you repay your
mortgage within the initial period.
TRACKER MORTGAGES
A tracker mortgage is linked directly to the Bank of England
interest rate. For example the interest rate may be the Bank
of England rate plus an additional 2% for 3 years. The Bank
of England rate can rise and fall – making monthly budget
planning more difficult.
Advantages & disadvantages
Like discounted mortgages these rates tend to be very low
initially and many customers are attracted to the lower
payments. Unlike the Discounted rate, the tracker mortgage
is linked to the Bank of England rate which means that the
lender cannot change the rate at their discretion. The main
disadvantage is that the mortgage rate can increase at any
time and it is important that you check that you could afford
the monthly payments if the mortgage rate increased.
You will incur an early repayment charge if you repay your
mortgage within the initial period.
|