These have an interest rate that can change from one month to the next. This rate is paid each month with the interest rate being based on the Bank of England’s base rate and the base rate of each Lender. With variable rate, there is the chance that repayments could ride or fall depending on interest rates so monthly payments will be vary.
With a fixed rate mortgage the interest rate payable stays the same for an agreed period of time, even if the Bank of England base rates change. You will have the certainty that the monthly cost of your mortgage will not change during the fixed rate term. The fixed rate products are usually between a 2 – 5 year period.
For new customers and first time buyers, these are similar to a standard variable rate mortgage but have a discount on the rate that has to be paid back. These normally last from 2 – 5 years and will transfer automatically to a Standard Variable Rate Mortgage after the term has ended.
The interest on this type of mortgage will stay directly proportional to in the Bank of England Base rate. These typically have a higher rate of interest and can last from 1 year through to the lifetime of the loan. You would pay more each month should the rate increase, but likewise, benefit if the interest rate were to fall.
For those with large amounts of savings, an offset mortgage saves on the amount of interest you pay over the term of the mortgage.
Fixed, Tracker and Discount rate mortgages can come with early repayment charges so always check the small print. The lender may also charge a ‘booking/arrangement fee’ to apply for this type of mortgage. After the fixed, tracker or discount rate ends the mortgage will revert on to the lenders' standard variable rate.
Getting a mortgage offer isn’t always easy, especially if you’re looking for something a little more unconventional like a self-employed mortgage, new build mortgage or a bridging loan to cover the gap between two mortgages.
If you plan to build your own home then you will need to take out a specialist self-build mortgage to finance it. These mortgages work differently to standard mortgages, with the lender releasing cash in stages during the build. Some lenders will only pay after stages are successfully completed while others will make an advance payment so you can pay for the work as you go.
You should also note that planning permission and detailed plans need to be in place and you will need to show that you are employing professionals rather than doing the work yourself.
Remortgaging is when you take out an additional or different mortgage on a property you already own. For example, you may remortgage when your current mortgage deal is about to come to an end to see if you can find a better rate or more suitable product, or you may remortgage to fund some improvements to your home.
Remortgaging is something we should all think of regularly to make sure we are still on the best mortgage deal.