What different types of payment mortgages are there?
Standard Variable Rate Mortgages
The Standard Variable Rate or SVR is a type of mortgage where the interest rate can change, influenced by the Bank of England base rate. Each bank sets its own standard variable interest rate, which is usually a couple of percentage points higher than the Bank of England’s base rate. SVR is one of the most common types of mortgages available with many leading lenders offering at least one and sometimes offering several with different rates and terms to choose from.
You are more likely to continue with this type of mortgage after finishing a fixed-rate, tracking, or discount mortgage.
A lender can increase or decrease your SVR at any time, and as a borrower, you have no control over what happens to it.
One advantage of this type of mortgage is that you generally have the freedom to make overpayments or switch to another mortgage at any time without paying a penalty. Another benefit is that the interest rate will generally fall if the Bank of England base rate falls. The downside is that the fee can increase at any time and this is worrying if you are on a tight budget. The lender is free to increase the rate at any time, even if the Bank of England base rate does not rise.
Fixed Rate Mortgages
A fixed rate mortgage means that the interest rate is fixed for the duration of the deal. Fixed-rate mortgages are suitable for those who want to budget and want to know exactly what their monthly expenses will be. You don’t have to worry about general interest rate increases, and you can be secure in the knowledge that your payments won’t increase during the fixed-rate period. A prepayment fee may apply if the mortgage is paid off during the stated period.
In addition to standard variable-rate and fixed-rate mortgages, there are a few other types you may want to consider before choosing the one that’s right for you. You could even combine some of the options.
Variable Mortgage Discount
Basically, a discount mortgage offers an introductory deal. This type of loan is cheaper than the Standard Variable Rate at the beginning of your mortgage. It allows you to take advantage of a discount for a certain time at the beginning of your mortgage, normally the first 2 or 3 years. When the fixed term ends, the interest rate will be higher than the Standard Variable Rate.
The introductory discount rate is variable, just like the rate that follows it, so keep in mind that, like a standard variable rate mortgage, the amount you pay is likely to change based on the Bank’s base rate. of England for the duration of the mortgage. Also keep in mind that the discount offered up front can be very good, but you need to look at the general rate that is offered.
A prepayment fee may apply if the mortgage is paid off during the discount period.
mortgage tracker
With Tracker Mortgage, the interest rate is tied only to the Bank of England base rate. If the Bank of England’s base rate rises, so will the interest rate you must pay. If the Bank of England base rate falls, your monthly payments will also decrease. By comparison, the interest rate on a standard variable rate mortgage is similarly linked to the Bank of England base rate, but can also be changed by the mortgage lender at any time and for any reason. With Tracker Mortgage, you are guaranteed that the rate will only follow the Bank of England rate and will not be influenced by any other factors.
Flexible Mortgages
This type of mortgage is designed to adapt to your changing financial needs. It can allow you to overpay, underpay, or even take paid vacation. You may also be able to make lump sum refunds without penalty. If you make overpayments, you may be able to borrow again as well. However, to allow for all this flexibility, you can expect the interest rates charged on Flex Mortgages to be higher than most other payment mortgages.
Limited Rate Mortgages
Limited rate mortgages, similar to standard variable rate mortgages, offer you a variable interest rate. The difference is that your rate will be capped. This guarantees that the rate will not exceed a certain amount.
Sounds like a great deal, but there’s a downside. The bank will initiate the mortgage with a higher interest rate than the normal standard variable rate or fixed rate. This is to cover the bank in case future interest rates rise above the rate they have set for you.
Also, the caps tend to be quite high so it is unlikely that the Bank of England base rate will exceed it over the life of the mortgage.
Because the bank can adjust the rate on this mortgage at any time up to the level of the cap, it’s best to think of the cap as the maximum amount you might have to pay each month.
Compensated Mortgages
Offsetting mortgages are sometimes known as checking account mortgages. They link your bank account to your mortgage. If you have savings, they will go towards the balance of the mortgage. For example, if you have £20,000 in savings and a £200,000 mortgage, you’ll have to pay interest on the £180,000 balance. You will not receive any interest on your £20,000 savings, but you will not have to pay interest on your £20,000 mortgage.
Some offsetting mortgages are linked only to your checking account, while others are linked to both your checking and savings accounts. Equalization Mortgages are available in either fixed rate offerings or a variety of variable rate offerings as well.
