This type of mortgage rate is usually referred to as the ‘lenders standard variable rate’. As the name suggests the rate can fluctuate up or down usually in line with the changes to the Bank of England base rate. You should not be ‘locked’ into this rate.
This mortgage has a rate that is fixed for a specified time period. The general rule is that the shorter the term the lower the rate. You will need to be aware of the Early Repayment ‘tie in’ period. This type of scheme is good if you want to know exactly how much the mortgage payments are going to be each month and therefore can assist in budgeting. The major downside is that if rates reduce you may be left paying a high rate.
This type of rate is very similar to a fixed rate with the additional advantage that should rates drop then the capped rate reduces in line but if rates go up the ‘cap’ means that this rate remains constant at the initial rate. These rates are quite rare at present and will undoubtedly be more prolific should we experience a period of higher interest rates.
Your interest rate paid is calculated by discounting off the variable rate- ie a lender will give you a discount off their standard variable rate for a period of time. Although you can get lower rates it will fluctuate with changing interest rates. Although lenders generally move their standard variable rate in line with the base rate they are not duty bound and therefore can make their own adjustments.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. There may be fee charged for mortgage advice. The precise amount will depend upon your circumstances but the maximum fee would be 1.5% of the loan value. Some mortgage and insurance products are not regulated by the FSA.
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