We, at Home First UK, offer our clients the full range of mortgage services, from initial advise and application trough to offer and completion. We are directly authorized by the FSA to recommend mortgages from the whole of the UK market thus ensuring our clients have the widest available choice at any given time. To help you understand the basic types of mortgage products below we offer a list with brief discription.
Fixed Rate Mortgage
Fixed Rate Mortgage guarantees that your monthly repayments will not change for the period of the fixed rate, regardless of the interest rate in the marketplace. This protects against rising interest rates, however, if the variable rate falls below the fixed rate level, your repayments will not fall. At the end of the fixed rate term your mortgage reverts to the lender's standard variable rate. Fixed rate deals are available over different periods, from a few months to 10 even 25 years.
Often with fixed rate deals there will be a penalty if you change your mortgage or pay all or part of it off before the fixed term ends. This is known as early redemption penalty. Most modern fixed rate products offer the option to pay off between 5% and 10% of the loan per year with no penalty. There also are products available without these penalties, but the rates are usually higher.
Capped Rate Mortgage
A capped Rate Mortgage guarantees that the interest rate you pay cannot exceed the agreed capped rate, thus setting up the maximum amount your monthly repayments could rise to. If the base interest rate falls below the capped rate, the repayments will also reduce.
Discounted Rate Mortgage
A discounted mortgage offers you reduced payments for a given term. The lender gives a discount from their standard variable rate (SVR). For example, the variable rate may be 7% with a discount of 1%, making your initial interest repayment rate 6%. If the variable rate on which your discount rate is based falls, your repayments will fall.
However, if the lender's SVR rises, so will your repayments. Often with discounted rate deals there will be a penalty if you change your mortgage or pay it all off before the end of the term. This is known as a redemption penalty. The amount of the penalty is usually calculated as a percentage of the outstanding balance and usually decreases as the term progresses.
Variable Rate Mortgage
The interest rate charged on a variable rate mortgage fluctuates in line with any changes in the industry interest rates. This makes predicting the monthly cost of the borrowing very hard and uncertain, which could cause financial concerns. Falling rates will make the variable rate mortgage beneficial and increasing rate will act to borrower's disadvantage.
Current Account and Offset Mortgages
A current account mortgage is actually like a large used up overdraft facility. Thus, if you had a mortgage of £200,000 and £5,000 goes into your account your balance would show as £195,000 overdrawn. This allows the mortgage to finish early and is generally cheaper as any credit going into the account, such as salary or bonus, immediately reduces the outstanding balance.
The difference between current account and offset mortgage is that with offset mortgage you keep your balances e.g. mortgage, savings, current account etc in separate accounts but all balances are offsetting against each other. This way the interest accrued on the credit balances is offset against the interest charged on the mortgage and the other commitments.
These mortgages often allow you to make underpayments - pay less for a given month provided that you have previously paid extra. Payment holidays and overpayments are usually allowed as well. Most current account and offset mortgages are variable rate mortgages.
Base Rate Tracker Mortgage
The interest rate on a base rate tracker mortgage follows the Bank of England base rate for a set period or for the life of the loan. This makes the repayments more uncertain as they will be based on the Bank of England base rate and a possible loading for a set period or for the term of the loan. The rate payable will alter in line with any change to the Bank of England base rate.
This means that you cannot predict the monthly cost of the borrowing, which could cause financial concerns within the mortgage period. In times of falling interest rates variable rate mortgages are beneficial as your mortgage repayments will reduce. However, if interest rates rise, then so will repayments.
A cashback mortgage provides a cash rebate on completion of the purchase. The sum is either a percentage of the advance or fixed. This cashback could help you to cover some of the expenses of setting up home, but this bonus is often subject to higher repayment rates and may include penalties for repaying the loan early. Cashback may be offered on fixed, variable or capped rate options (see these sections for more information).
The main feature of a flexible mortgage is the facility to make extra payments when you have extra money. You may also be able to reduce monthly payments or even take payment holidays, although you will normally have to build up a reserve through making overpayments before this arrangement is allowed. Such mortgages are usually offered on a daily interest basis. Flexible mortgages usually provide a loan drawdown facility that allows you to borrow extra funds at a set predetermined rate.