Mortgages Types Of Interest Rate

Mortgages - Types Of Interest Rate
Types of​ Interest Rate
You have researched into all the​ different mortgage types and found a​ suitable one for you​ .​
Now is​ time to​ look into what type of​ interest rate you​ wish to​ pay .​
The type of​ interest you​ wish to​ pay will depend on​ your circumstances and how much you​ are willing to​ pay out every month .​
You will find out below that not all interest rates/types are the​ same .​
Discounted rate
A discounted rate allows the​ buyer to​ pay a​ reduced payment for a​ fixed amount of​ time .​
After the​ fixed term is​ aver the​ rate usually increases to​ the​ national base rate .​
Discounted rates are attractive for first time buyers and also home buyers who require extra cash for renovations .​
The term of​ discount does give you​ time to​ get used to​ having a​ mortgage payment .​
Fixed rates
With a​ fixed rate mortgage you​ are guaranteed the​ same rate of​ interest every month for a​ fix period or​ term .​
This rate will not fluctuate as​ long as​ you​ are in​ an​ agreement for a​ fixed term .​
The fixed term can be anywhere from 1 to​ 7 years .​
Do be careful when taking a​ fixed rate mortgage term don’t forget to​ ask the​ lender if​ you​ have any obligation to​ stay with the​ lender after the​ fixed term is​ over?
Variable rate
Variable rate mortgages do tend to​ fluctuate around the​ base rate,​ and are generally higher then the​ discounted,​ fixed and capped rates that are also available .​
Usually,​ after you​ have been at​ a​ discounted rate,​ your interest rate will move up to​ a​ variable rate .​
This could be for a​ specified time you​ have agreed to​ with the​ lender .​
Capped rate
With a​ capped rate mortgage,​ the​ lender will cap the​ mortgage rate to​ a​ specific amount,​ which allows the​ interest rate to​ never rise above this level for a​ fixed term .​
However if​ the​ interest rate decreases? So will your rate .​
Tracker mortgages
A tracker mortgage actually tracks the​ Bank of​ England base rate .​
This means your mortgage stays in​ line with interest rates .​
The way a​ tracker reflects on​ your monthly mortgage interest payments is​ that they go up when the​ base rate goes up and go down when the​ base rate goes down .​
Similar to​ a​ standard variable rate mortgage a​ tracker follows the​ percentage rate imposed by the​ Bank of​ England .​
Unlike the​ standard variable rate mortgage changes annually or​ monthly a​ tracker mortgage guarantees to​ follow changes in​ the​ Bank of​ England base rate within 2 weeks of​ the​ interest rate changing,​ allowing the​ borrower to​ benefit from both falls and rises of​ the​ interest rate quicker .​
However,​ there are disadvantage to​ tracker mortgages .​
If interest rates were to​ rise sharply,​ so too would the​ cost of​ a​ tracker,​ so in​ situation like this you​ would lose out and find yourself paying more per month that you​ did the​ previous month .​
In this type of​ situation a​ fixed rate or​ a​ capped rate mortgage would have been advantageous to​ the​ borrower .​
Trackers do work better for the​ borrower when interest rates are falling but if​ you​ look at​ the​ bigger picture,​ they give you​ clear insight to​ whatever the​ Bank of​ England does with rates .​
With a​ tracker both the​ borrower and the​ lender know exactly what they are getting .​
Flexible Mortgages
With a​ flexible interest mortgage,​ you​ the​ lender can usually pay more if​ you​ have extra cash available,​ pay less if​ you​ need to​ save a​ little,​ maybe even take a​ holiday from your payments .​
Flexible is​ what it​ is,​ flexible .​
Also the​ interest on​ a​ flexible mortgage is​ calculated daily instead of​ annually .​
So you​ reduce the​ interest amount with every payment .​
Checking the​ APR
Always remember to​ check the​ Annual Percentage Rate (APR) of​ the​ mortgage you​ are considering taking out for a​ specified term .​
Usually the​ lower the​ APR the​ cheaper the​ rate at​ which you​ will pay back every month .​
However do be careful,​ some lenders will offer you​ the​ opportunity to​ take a​ very low APR over a​ fixed period and then a​ standard rate for a​ further fixed term .​
Situations like this can potentially turn to​ disaster for some people .​
If you​ have discounted mortgage rate for two years at​ 3.9% which totals a​ monthly payment of​ £300 per month,​ after the​ 3.9% term has ended,​ you​ are still in​ a​ contract with the​ lender for a​ further two years at​ a​ rate of​ 5.9% you​ will find that the​ payment will increase substantially .​
In this situation you​ could find yourself not being able to​ afford the​ mortgage payment,​ also unable to​ transfer your mortgage to​ another lender due to​ redemption penalties for early breach of​ contract .​
Redemption penalties
The various discounted mortgages available e.g .​
capped,​ discounted and fixed do tend to​ carry a​ redemption penalty .​
This is​ due to​ the​ lender operating a​ special rate for the​ fixed amount of​ time .​
Some of​ the​ standard rate periods can be for a​ longer period than the​ special rate term .​
So do not forget to​ read the​ small print,​ and always remember to​ ask about the​ redemption penalties and the​ standard rate period of​ the​ mortgage you​ are enquiring about .​
There are mortgages out there now that offer no fixed penalties or​ require you​ to​ be tied in​ with a​ lender over the​ discounted period.
Mortgages Types Of Interest Rate Mortgages Types Of Interest Rate Reviewed by Henda Yesti on July 03, 2018 Rating: 5

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