Mortgages |
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Understanding mortgage rates
Considering that you are likely to be tied into your mortgage for two years or more, here's a guide to the different types of mortgages on offer. Variable You will be charged your Fixed You will be charged a fixed rate of interest for a specific period, normally two to five years, before reverting to the lender's SVR. During the fixed-rate period your rate will remain the same - irrespective of changes in the base rate - so this is good news if rates rise, but you could lose out if they fall. Discount The rate you pay will be linked to your lender's SVR but set at a specific percentage below it - normally around 2% - for a set period. As a general rule, the shorter the discount period, the larger the discount. Discount rates tend to be the cheapest around, but you will still be vulnerable to increased monthly repayments should interest rates rise. Capped Similar to a variable rate mortgage; the rate of interest and size of your repayments are determined by your lender's SVR but with an upper limit built in for a set period. This means you get the benefit of reduced repayments if the rate falls but have the security that your repayments won't exceed a set limit if rates rise. This type of mortgage is generally more expensive than fixed-rates and there are very few caps on the market. Tracker Your rate will fluctuate like SVRs, but in line with the bank base rate rather than the whim of the lender. You will have the certainty that any base rate movement will be passed on to you in full and straightaway - but that means both rises and falls. Tracker deals are usually set at a fixed percentage above or below the base rate - base rate plus 0.5%, for example - for a set period or the full term of the loan. Remortgage and save If you have a fixed, discount, tracker or capped rate mortgage, when your initial deal comes to an end you will automatically be transferred onto your lender's standard variable rate (SVR). SVRs can be as high as 8% - which means your monthly repayments will rocket - so it's crucial to remortgage to a better deal. Lenders rely on our inertia not to switch to a new lender, so if you're languishing on a poor SVR, start looking round for a better deal as soon as possible. Equally, if you're coming to the end of your current deal, secure a remortgage now, so you can switch immediately without getting stung. Just check that you aren't tied in. The Moneywise Mortgage Awards are a good place to start. Halifax, our winner in the remortgage category, offers a quick and easy remortgage process with free valuation and legal fees, so it should cost very little time or money to switch. Some lenders impose heavy arrangement fees, but if you have a large mortgage these will normally be recouped by your savings. A good broker can do the maths for you.
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