A residential mortgage is a loan secured against your property to facilitate its purchase. In return for lending you the money, the provider will charge interest. The amount you can borrow is based on what you can afford to repay, and they typically last for 25 years.
You can choose which type of mortgage best suits your plans and circumstances. The most common types are fixed, tracker, discount and variable rate mortgages.
Fixed rate mortgages
Fixed rates refer to the initial term to which a specific interest rate will apply. The most common fixed rate terms are 2, 3 and 5 years.
Usually the longer your fixed term, the higher your interest rate will be as you effectively buy the additional security and peace of mind of knowing your monthly repayment won’t increase.
At the end of the fixed rate period, you’ll then transfer to the provider’s standard variable rate, and you’re free to remortgage to another mortgage product or provider.
Fixed rate mortgages often carry the highest application fees and usually apply an early repayment penalty should you wish to repay the loan during the fixed term.
Tracker mortgages usually track the Bank of England base rate by a specified amount (for example, base rate +1%). Changes to the base rate will most likely affect your interest rate, and therefore your monthly repayment may change also.
These products tend to offer a great deal of flexibility as they usually have minimal early repayment charges and can offer extremely competitive rates of interest.
Discount rate mortgages
Discount rates usually offer a specific discount off the mortgage provider’s standard variable rate. The discount most commonly applies for two or three years but could be for any term. These tend to offer extremely competitive rates of interest.
This type of mortgage usually benefits from low application fees, and early repayment penalties only tend to apply during the discount period. The main risk is linked to any change in interest rates that could affect your monthly repayment.
Variable rate mortgages
Variable rates are usually referred to as a provider’s standard variable rate (SVR). Each provider can set their own SVR, and any increases or decreases do not have to be linked to a change in the Bank of England base rate.
Most variable rates tend to sit between the bank’s tracker and fixed rates. The main advantage of this type of interest arrangement is that you have no restrictions on overpayments, and there is usually no early repayment penalty.
The primary disadvantage is that your interest rate and therefore your repayment could increase at any time and therefore the cost of your mortgage could increase.
If you would like to discuss your particular situation or to find out more about our services, please call us today on 02380 420 606 – we look forward to hearing from you.
I was introduced to Roger Badley and eventually Asset Management IFA Ltd 12 years ago and they have helped with advice on both house purchase and investments and I would not hesitate to recommend their services to any of my associates.
Mike Gawthorne – ARM