Does your profile match your mortgage rates?

Make sure you understand what type of mortgages you are taking on.

07:13 08 December 2013

The economy and interest rates are always changing, so you must take care to fully understand the different types of mortgages and what they offer. 

 

• Fixed Rate Mortgages: 

          This offers a set interest rate for a specified period of time. This makes monthly budgeting much easier. The only gamble is that you don’t know if interest rates will have gone up or down by the end of the period.

 

• Variable Rate Mortgages:

          Payments will go up or down depending on the interest rates of the mortgage lender. Starting with a low rate does not mean it will not increase.

 

• Tracker Mortgages:

          These are called “tracker” mortgages because they are linked to the Bank of England. Your payments would vary according to the amount by which the Bank’s rates rise and fall.

 

• Capped Rate Mortgages:

          With this type of mortgage, rates will go up and down but a maximum limit is set on how much you have to pay. So even if interest rates rise above that maximum, your fee will not.

 

• Collared Mortgages:

          These are often combine with tracker or capped mortgages. The “collar” means there is a           minimum limit to how much you must pay.

 

• Cashback Mortgages:

          This will offer an extra sum of money at the beginning of the mortgage, perhaps to use for the house, and is often used in conjunction with a variable mortgage.

 

• Offset Mortgages:

          With this you can save interest on your mortgage by “offsetting” the payments with a savings account. For example if you have a £120,000 mortgage and put £20,000 into savings with your lender, you will only pay interest on £100,000. You will not receive interest for that £20,000, but you won’t have to pay interest on it either.