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Types of Rates

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So what are the different types of rates available?

Once you are clear about the type of mortgage you want - repayment or interest only, choosing how you want to be charged interest is the next step. Through discussion and based on your requirements we will advise you on the best option from the following range of products:

Variable rate
This rate moves up and down, usually mirroring changes made to the base interest rates set by the Bank of England. Lenders aren't tied to these rates, so can vary them. Your lender will set their variable interest rate higher than the base rate, usually 1% or 2% above it. For example, if the base rate is 5% and your mortgage lender's variable rate is 1.5% above it, you will pay 6.5% interest. Bear in mind, as variable interest rates vary widely between lenders and are usually not as competitive as other mortgage deals on the market.

Fixed rate
This rate provides greater certainty, as your interest payments are guaranteed not to change for the duration of the fixed term, typically between one and five years. Longer terms are also often available. At the end of your fixed rate term, the interest rate will usually revert to the lenders standard variable rate.
If interest rates fall below your fixed rate during the duration of the loan, you end up paying more than if you'd chosen the lenders variable rate. You may have to pay a reservation fee for the fixed rate, called an Arrangement Fee. If you change your mortgage during the fixed rate period, and sometimes for a period after it ends, you will usually have to pay the lender an early repayment charge.

Capped rate
These interest payments have a fixed maximum rate that you will pay for a fixed term "a cap". If interest rates rise, yours will not exceed above this ceiling rate. You get a certain degree of protection if rates rise significantly, and if they fall, you pay less. The interest rate set for capped deals is often slightly higher than fixed rates.
This security can make it easier to budget for your monthly mortgage payment. At the end of your capped rate term, the interest rate will revert to the lenders standard variable rate. If you change your mortgage during the capped rate period, and sometimes for a period after it ends, you will usually have to pay the lender an early repayment charge.

Discounted rate
You will receive a guaranteed discount on the lenders standard variable rate for a fixed term. So, if the lenders standard variable rate is 6.5%, with a guaranteed discount of 1%, you will pay 5.5% interest for a set period. Remember though that only the amount of the discount is fixed. The rate will still be variable so the amount you pay can still go up in line with changes made by the lender.
You may have to pay an Arrangement Fee to reserve the lender's deal. If you change your mortgage during the discounted rate period, and sometimes for a period after it ends, you will usually have to pay the lender an early repayment charge.

Tracker rate
Lenders will set their "tracker rate" at a certain margin above or below the Bank of England base rate, and move in line with it. If the base rate drops significantly, you will benefit financially, paying less in interest. But equally, if he rates rise, so will your monthly repayments. Tracker can either be set for a set number of years or for the life of the mortgage.

Flexible mortgages
Flexible mortgages or lifestyle mortgages allow you to increase, decrease or take a payment holiday (usually after making overpayments).
Essentially, flexible mortgages fall under the repayment umbrella. With a flexible mortgage you could pay off a lump sum from your mortgage if you received a bonus or inheritance. If disciplined you could shave years off the length of your mortgage term and save interest, by making regular overpayments each month.

Flexible mortgages normally include "offsetting" which is achieved by having a savings or current account linked with your mortgage. Instead of you receiving interest on any money in your savings or current account, the money held in your account is offset against your mortgage balance, each time the interest is calculated on your mortgage.
This can significantly reduce the amount of interest you pay over the term of your mortgage; however, you need to have the discipline to save on a regular basis.

Mortgage interest rates change regularly, and so do the offers that are available. For the fuller picture and to get a true idea of what your mortgage will cost over the longer term, get some advice from a qualified mortgage specialist. We can help make buying your property a more agreeable experience.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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