Mortgages Defined
Click on a mortgage type below for more information.
SVR Mortgages rising and falling rates are set by the lenders in conjunction with and in reflection of the changes to the Bank of England’s base rate. Discounted, capped and fixed mortgages revert to SVR mortgages at the end of the agreed term.
Usually higher rates are charged for a Flexible Mortgage. By the self explanatory nature of a flexible mortgage, borrowers can be much more in control of their monthly payments. By overpayment, the term of the mortgage can be reduced which in turn allows the overall cost of borrowing to be reduced. Payment vacations or suspensions of payments allow flexibility of lifestyle but may increase the term or overall cost of the mortgage.
Offering great appeal over recent years to allow for projected budgeting with no surprises in any base rate increases, the interest rate is ‘fixed’ for an agreed term. Usually penalties apply in the form of early repayment charges should you want to repay the mortgage early.
Rather than following the Bank of England’s base rate as SVR Mortgages outlines above, Tracker Mortgages are tied to a base rate, usually the Bank of England’s. Rates are set a certain percentage above the Bank of England’s rate and are guaranteed to reflect any increases or decreases. The principle is with falling rates; borrowers profit, rising rates, borrowers carry the cost. Early Repayment Charges may apply.
The difference between a SVR and a Capped Mortgage is the ceiling above which rates cannot rise. Whilst guaranteeing that the interest rate will not rise above the ‘capped level’ any falling interest rates become advantageous to the borrower. Early Repayment Charges may apply.
A Discounted Mortgage features interest rates set below the lender's Standard Variable Rates for a specific period of time. The DRM allows payments for this set period of time to vary in line with changes in the lender's SVR. After the set term expires at the discounted rate, interest typically reverts to the SVR rate. Early repayment charges are usually attached to Discounted Rate Mortgages.
Lenders use differing criteria when offering a mortgage for buy-to-let property in this ever increasingly popular field of investment. Buy to Let products are more expensive than traditional mortgage products due to the higher risks involved to the lender. The lender will require establishing a pre-determined percentage by which monthly rental income would normally exceed the monthly mortgage repayment figure; however increasingly Buy to Let mortgages also take into account and are subject to proof of assets or income. Click here to find out more about Buy to Let mortgages.
Self explanatory in name; The Interest Only Mortgage means your monthly payments only pay the interest charges on your loan – you’re not actually reducing the loan itself! The upside of the Interest Only Mortgage is that because you are only paying off the interest and not the loan itself, your monthly payments will be lower. The downside is that you are responsible to pay back the loan in full and it is very important you arrange some other way to repay the loan at the end of the term.