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Independent Mortgage
Services
T. 0114 2509100
F. 0114 2580580
E. enquiries@ims.uk.net |
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Discounted Rate Mortgages do exactly what they say – give a discount on the lender's Standard Variable Rate (SVR) Mortgage. For example, a mortgage lender may offer a 2% discount on its SVR mortgage for two years. With an SVR of 6%, this would make your mortgage rate 4%.
Discounted rates are of course variable as they are linked to the SVR, which is in turn set by the Bank of England base rate.
This means should the base rate fall, the SVR mortgage will quickly follow suit, meaning a decrease in your monthly mortgage payments hurrah! Unfortunately, should they rise the opposite will occur, leaving you out of pocket.
Lenders also tend to be pretty hot at implementing an SVR rise, but can let many months elapse before applying a cut, meaning that you won't benefit straight away.
This type of mortgage is therefore not for those on a tight budget as your mortgage payments could potentially vary quite a lot. However, if you've a little more money to spare and rates are low, or predicted to go down, snapping up a good discount deal could save you some money. And if you avoid any extended early repayment charges you can simply re-mortgage at the end of the mortgage deal.
Whilst the discounted rate mortgages are both linked the mortgage lender's Standard Variable Rate (SVR), Tracker Mortgages leave out this middle man and track a base rate directly.ie The Bank Of England Base Rate. For example, your tracker mortgage rate may be set at 1% above base rate. The advantage here is that should the base rate be cut, you will benefit immediately as you don't have to wait for your mortgage lender to decrease his SVR. Of course, base rate rises are also reflected in your mortgage rate straight away, but then lenders usually aren't shy about quickly increasing their SVRs!
Like the discounted rate mortgage, you can't predict how much your monthly mortgage payments will be if rates rise, so trackers are not a good choice for those on a tight budget. However, if your finances aren't too stretched, tracker mortgages can be a great way to benefit immediately from any future interest rate cuts.
If you get a Capped Rate Mortgage then you'll have the comfort of knowing that the interest rate will not rise above a certain level during the term of the capped rate.
If you like the idea of the discounted rate mortgage, but don't want your payments to vary too much, a capped rate mortgage may be for you. Although capped rate mortgages are still linked to your mortgage lender's SVR (and so will rise and fall with the base rate) their interest rate is "capped" for a given term. So if interest rates rise above your capped level, you will benefit - and if they fall, so will your mortgage rate, so you'll win again! It's kind of like getting the security from a fixed rate mortgage, with the potential savings of a discounted rate mortgage.
Don't get too excited though, this kind of flexibility comes at a price and capped rate mortgages are usually higher than both fixed and discounted mortgages. However, they can be a good option for those that need to budget their outgoings, but would still like to benefit should rates fall.
Flexible Mortgages allow you to vary your payments, which is useful if your income fluctuates on a regular basis.
Flexible mortgages do what they say, they allow a bit of flexibility. So, instead of being tied down to the same mortgage payment for the whole term, they allow you to overpay (usually up to around 10% of your mortgage) when you have a bit more cash, and underpay if you should need a bit of a breather. However, you should really only underpay if absolutely necessary, as you'll simply be increasing that mortgage debt even more. You'll also usually have to have to have built up a reserve through overpaying, first.
Although the idea of overpaying on your mortgage may not appeal (after all, most mortgage payments are large enough as it is) with interest being calculated on a daily basis overpaying could save you thousands of pounds over the term of your mortgage. Overpaying on your mortgage is therefore usually well worth doing, if you can afford it. What's more, a large number of standard mortgages have a degree of flexibility, so it's worth asking your mortgage lender how flexible your mortgage deal is. |
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
We do not normally charge a fee for Mortgage Advice, although depending on your circumstances
we may charge a fee of up to 1.5% of the loan amount. A typical fee is £299.
Independent Mortgage Services is a trading name of Prospect Enterprises (UK) Limited which is an appointed representative of Legal &General Partnership Services Limited which is authorised and regulated by the Financial Services Authority for advising on and arranging mortgages and insurance. Prospect Enterprises (UK) Limited's registered office 786 Chesterfield Road, Sheffield, S8 0SF. Registered in England No. 4865449.
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