Mortgage Schemes

With this type of rate your payments should rise and fall in line with the Bank of England base rate changes, but not necessarily at the same time or by the same amount. You will almost certainly be paying a higher interest rate than the Bank of England base rate. Most borrowers are transferred to their lender’s standard variable rate once their initial incentive rate period comes to an end. This is usually  a good time to remortgage!

• They are simple to understand
• There are often no early repayment charges if you switch from a standard variable rate unless it is a capped deal

• The monthly repayments on your mortgage may rise rapidly if interest rates rise
• Unpredictability of interest rates movements may make it hard to budget

Fixed rates give you the security of knowing that your monthly payments are the same. With this type of mortgage, you pay a fixed rate of interest for a set period typically over 2, 3 or 5 years, so you know exactly what you’ll be paying each month even if interest rates change.

• Offers you the peace of mind of knowing exactly how much you will be paying during the fixed rate period
• Makes budgeting easier
• Security of knowing that if interest rates do rise, your monthly repayments won’t rise

• Early repayment charges are likely to apply
• You are likely to pay a booking fee or arrangement fee
• You will not benefit if interest rates fall
• At the end of the fixed period you will switch to the lenders Standard Variable Rates which could see a large jump in your monthly payments, known as payment shock

Your payments change when interest rates fall or rise. Tracker rates are usually linked to the Bank of England base rate or the lenders base rate, which means they’ll change in line with changes to the base rate. Tracker rates usually offer an initial incentive, typically two or three years. For example, the interest rate payable may be set a small percentage above the rate (called a loading) being tracked for an initial period. At the end of the incentive period the rate payable will switch onto the lenders Standard Variable Rate.

• Gives you the certainty of knowing the interest rates you pay will move in line with the rate being tracked
• They generally offer an initial incentive rate which is lower than a fixed rate mortgage over the same period
• Some lenders offer the option of switching from at tracker to a fixed rate deal with the same lender without having to pay the early repayment charges, but you may have to fay and arrangement or booking fee

• Can be difficult to budget as If the rate being tracked increases, your interest rate and monthly mortgage payments will also increase.
• Some trackers have a “collar” which is a minimum that your rate can fall to and will not drop any more even if interest rates fall below it.
• Early repayment charges are likely to apply for at least for the Tracker Rate period
• Usually there are arrangement or booking fees payable
• When your initial Tracker period ends, your rate will normally switch to the lenders Standard Variable rate which could mean a jump in monthly payments, known as payment shock

You will know the maximum you will pay for a set period of time. A capped rate offers you the option of knowing the maximum monthly repayments you would have to make during a set period, typically 2 3 or 5 years. Capped rates work in a similar way to variable rates, but also but with a maximum (capped) interest rate during the initial period . The initial interest rate will be set but will vary in line with interest rates but will not exceed a specified upper limit (the cap) for the set period.

• Offers you the peace of mind of knowing the maximum you could be repaying during the capped rate period
• Makes budgeting easy as you will know the maximum you could pay
• You’ll benefit from a reduction in interest rates although if a ‘collar’ applies, there may be a limit below which the rate you pay will not fall

• Rates may be higher than the equivalent fixed rate mortgage
• Some capped rates have a “collar” which is a minimum that your rate can fall to and will not drop any more even if interest rates fall below it.
•  Early repayment charges are likely to apply for at least the term of the capped rate
• There are usually an arrangement or booking fee payable for a capped rate mortgage
• After the capped rate period ends, you will normally have to pay the lender’s standard variable rate – so there may be a jump up in your monthly repayments, known as payment shock

Allows you to benefit from a discount on the lender’s standard variable rate. If the lender’s standard variable rate (SVR) increases or decreases, so does the discounted rate. For example, if the lender’s SVR is 4% and they offer a discount of 1% for two years, you will start off by paying 3%. If the lender’s SVR increases to 5% after 3 months, you will pay 4%. Typically, the shorter the discounted period the larger the discount.

• You can make a saving on the lender’s standard variable rate
• If the lender’s standard variable rate falls, your payments will reduce

• If the lender’s standard variable rate rises, so does the discounted rate which will increase your monthly repayments
• Budgeting can be difficult
• The lender may increase their mortgage rates whenever they wish, independently to any changes to the Bank of England base rate
• Early repayment charges are likely to apply for at least the term of the discount period
• There is usually an arrangement or booking fee payable
• After the discount period ends, you will switch to the lender’s standard variable rate – so there may be a jump in your monthly payments known as payment shock

Your savings will be offset against your outstanding mortgage.

Your main current account, savings account or both are linked to your mortgage. Each month, the amount in these accounts is offset against your outstanding mortgage before working out the interest you owe. You do not earn interest on your savings but are instead not paying interest on that amount of capital on your mortgage.

• If your current account is linked , as soon as your salary and other money is paid into your account, it is offset against the balance of your mortgage and therefore reduces the interest payable
• Usually allows you the option to make overpayments on your mortgage
• Interest is calculated daily, so any payments into your account work to reduce the interest you have to pay straight away
• You may be able to borrow more than the initial mortgage amount, perhaps for some home improvements – up to an agreed limit or drawing back any overpayments
• You can access the cash in your savings pots at any time (this will then stop reducing the amount of interest you pay)

• They can be difficult to understand as they are quite complex
• You need to be disciplined to make sure you keep on track with your mortgage payments
• The majority are variable tracker rates which means that an increase in interest rates would be reflected in increased monthly payments (although some fixed rates are available too)
• You may be required to move your personal bank accounts to the mortgage lender

You can vary the amount you pay each month (subject to the minimum required) and make overpayments as a lump sum or by regular monthly payments. Once you have overpaid you may be able to take payment holidays in some circumstances. By overpaying you can reduce the capital outstanding on your mortgage or reduce the overall term of your mortgage.

Most lenders offer a degree of flexibility on their normal product e.g. you can pay 10% extra off your balance each year or up to £500 per month in addition to your normal payments

• By making slightly higher monthly payments than required or paying off lump sums, you may be able to repay your mortgage loan more quickly and save interest over the mortgage term
• You may be able to take a payment holiday when your budget is stretched
• Most lenders flexible mortgages offer daily interest, this means that any payments you make have an impact on the amount outstanding on your mortgage straight away

• You may pay a higher rate for full flexibility on your mortgage compared with those mortgages with limited flexibility
• Many flexible mortgages feature a variable tracker rates which means that an increase in interest rates would be reflected in increased monthly payments
• Early repayment charges may apply for at least the term of any initial incentive deal period
• There may be an arrangement or booking fee payable