Mortgages Explained – General Information
When you have chosen the right mortgage for you, whether it be a repayment
mortgage where the amount you have borrowed, together with the interest is paid
progressively over the term of the loan. Or Interest only mortgages where you pay
only the interest on the loan during its term, and the total amount borrowed is
repaid at the end of the term using some form of repayment vehicle such as an ISA,
Pension or Endowment.
Once you have chosen what basis you are going to use to repay your loan you still
need to choose which type of mortgage would best suit your needs, listed below are
a some of the different mortgages available and how they work.
5. CASH BACK DEALS
Fixed Rate Mortgage
Fixed Rate is where there is a set interest rate for a fixed period of time, and then at
the end of the term the normal variable rate is paid. An arrangement fee is usually
payable when taking out this type of mortgage.
With Fixed rate there may be early repayment charges (ERC) however many
providers now offer fixed-rate mortgages where there is no penalty for paying off or
changing the mortgage once the fixed rate period ceases.
It should be remembered that should interest rates fall then you could end up paying
a higher rate than the standard variable rate.
A fixed rate may be chosen if you expect interest rates to rise generally, and enable
you to plan your budgeting.
Capped Rate Mortgage
Capped Rates varies in line with general interest rates, but does not rise above the
interest rate cap, or fall below a certain rate this is called an interest rate collar. This
agreement lasts for a fixed period of time, after which the normal variable rate is
Capped rates, like fixed enable you to plan your budget accordingly. An arrangement
fee must be paid for a capped mortgage and severe early repayment charges will be
paid during the first few years of a mortgage if you change providers.
It should be remembere