Mortgage Rate Options

When you have chosen the right mortgage for you, whether it be a repayment or an interest only mortgage, you will need to consider the 5 main mortgage rate options available.

Variable Rate Mortgage/ Adjustable Rate Mortgage (ARM)

Borrowers paying the Standard Variable Rate will have their payments increase or decrease as the lender adjusts the rate in accordance with market conditions.

Standard Variable Rate (SVR)

All lenders have a standard variable rate which is variable and fluctuates with any changes in interest rates. Although it is not directly linked to the Bank of England base rate, lenders will adjust their standard variable rate in response to any changes in base rate.

Current Account Mortgage (CAM)

A Current Account Mortgage (CAM) is a variable rate mortgage which is linked to your bank account. The interest is calculated daily and any money in your bank account can be offset against the outstanding mortgage balance. This can be used to reduce your monthly payments or reduce the term of the loan. CAM's calculate interest on a daily basis and offer a lot of flexibility. They are often suitable for people with fluctuating incomes. They can be particularly tax efficient for higher rate taxpayers.

Offset Mortgage

Offset mortgages work in a similar way to current account mortgages. With an offset mortgage the borrowing and the credit balances remain in separate accounts. However mortgage interest is only charged on the net amount i.e. the amount of the mortgage reduced by the balance held in your current account and any linked savings account. It is also possible to have an offset mortgage using a savings account as opposed to your current account.

Discount Rate

A discounted rate mortgage is a variable rate mortgage which offers a discount from the lenders standard variable rate. The lower discounted rate increases or decreases in line with any changes in the lenders standard variable rate. As a general rule the shorter the period of the discount the higher the level of the discount. At the end of the discounted period you will revert to the lenders standard variable rate.

Tracker Rate

A tracker rate mortgage is another type of variable rate mortgage however the interest rate is linked to the Bank of England base rate rather than the lenders standard variable rate. The lender will charge the borrower a percentage on top of the base rate. This rate can apply for a certain period or for the term of the mortgage.

Fixed Rate

A fixed rate mortgage fixes your interest rate for a period of time, meaning your monthly payment won't change. This period can be as short as one year or as long as twenty five years. As a general rule the longer the period of the fixed rate the higher the interest rate that applies. If you are a first time buyer you may like the idea of a fixed rate product, as having fixed monthly payments will make it easier for you to budget. At the end of the fixed rate you will revert to the lenders standard variable rate which is often higher than the fixed rate.

Compare Fixed Mortgage Rates
www.mortgageloan.com

Capped Rate

A capped rate mortgage is a variable rate mortgage with a maximum interest rate for a specific period. The interest rate cannot rise above the pre agreed capped rate during the specified period. If the lenders interest rates fall below the capped rate the borrower will benefit from any reduction. Capped rates may also have a ‘collar' which means the rate cannot fall below this level.

Capped Rate Mortgages/Mortgages/Best Buys
www.everyinvestor.co.uk

Compare over 8,500 mortgages.
www.moneysupermarket.com