Mortgage options

Mortgage Options

When arranging your mortgage, there are several mortgage options to consider:

Fixed Rate

Fixed rates allows you to fix the interest rate of your loan so that for a set period you have the reassurance of knowing that your repayments will not alter.

Fixed rates almost always have early repayment charges applying during the fixed rate. These early repayment charges will apply if you want to sell the property or re-mortgage or make an overpayment

A fixed rate will will enable you to budget.

They would be a sensible choice if you are borrowing a high multiple of earnings

Capped Rate

A Capped Rate fixes a upper ceiling to the interest rates so that in the event of rising interest rates you will not pay anymore than the limit set by the cap. If rates fall below the cap then your repayments will reduce.

It is important to realize that the interest rate is variable while below the capped ceiling.

A capped rate would suit those that are prepared to accept some degree of fluctuation, but require an upper limit to their mortgage payments.

Fixed and Capped rate mortgages are most suitable to those who are working to a budget and need to know that their repayments will not exceed a set figure.

Early repayment charges will normally apply during the capped rate period.

These early repayment charges will apply if you want to sell the property or re-mortgage or make an overpayment

Discounted Rate

Discounted Rate mortgages allow a discount to a variable interest rate for a set period.

The discount is a sweetener to attract new customers. The lender hopes that subscribers would stay with them after the discount period has finished

The discount may be applied to a tracker rate or to a standard variable rate.

It is quite common for early repayment charges to apply during the discount period

Tracker Rates

This is a variable rate mortgage linked to some reference level, often the Bank of England base rate. If the Bank of England base rate increases in the future then your mortgage payments will also increase.

Typically a tracker rate will be a set margin above the reference level.

Tracker rates can be discounted for a period before returning toa standard margin.

Early repayment charges may apply for a limited period

Cashback

As an incentive to attract new clients some mortgage lenders may offer a lump sum cash back. These are obviously useful if cash is needed at the outset, however the opening interest rates may not be as attractive.

Flexible Mortgages

Flexible mortgages , also termed Australian mortgages have become increasingly popular in recent times. They enable the borrower to actively manage their mortgage perhaps by altering the monthly payments or by paying off lump sums. Other options include the facility to take payment holidays and to borrow further amounts.

Offset mortgages give a further degree of flexibility in offering a separate savings account that is linked to your mortgage account. The balance in the savings account is offset against your mortgage balance. The advantage is significant. Consider that any balance in your offset account will reduce the net mortgage on which you are charged interest.

the money in your offset account is effectively saving you interest at your mortgage interest rate. If you are paying mortgage interest at 3%, the balance in your offset account is effectively earning 3%. Now this would be a good interest rate but there is more...

Interest earned in a deposit account is taxable at your highest rate of interest.

So if you are a higher rate taxpayer, 3% after taxation at 40% is only earning you 1.8%. However interest saved by offsetting is not taxable, so you are effectively earning 3% net (or whatever your mortgage interest rate is)

Please contact us to discuss offset mortgages