There are many different types of mortgage available to suit many different preferences. Some enquiries return a multitude of different deals available. Your Prospect Mortgage Services adviser can help you determine the most suitable deal for your individual circumstances.
Standard Variable Rate
Variable rate mortgages are the most familiar type of loan. The interest rate you pay goes up and down during the lifetime of the mortgage, broadly in line with interest rates imposed by the Bank of England. When the rate rises, the amount you have to pay rises, and when the rate falls the amount you have to pay falls.
Some lenders offer a way of levelling out interest rate changes over the year. In this way your payments only change once a year. This usually doesn’t affect payments overall, but it does make it easier to budget for the year ahead.
Fixed Rate
A fixed rate mortgage gives you a guaranteed rate of interest for a given period of time, after which it reverts to a standard variable rate. This situation can be very comforting if you have a large mortgage or a tight budget as you can ensure a fixed payment for an agreed term.
Bear in mind that, although you benefit when the interest rates rise, you do not benefit when interest rates fall. You should think carefully about how long you want to be locked into the same rate. Fixed interest rate mortgages can have expensive charges if you want to switch to a different interest rate arrangement during the fixed term.
Capped Rate
A capped rate mortgage is normally a variable rate mortgage with one main difference. Your payments increase and decrease with the interest rate but you have the comfort of knowing that the rate will not exceed a certain level. This is known as the ‘cap’. This level is dictated at the outset, normally for a given period, after which it reverts to a standard variable rate, sometimes the rate cannot fall below a certain level, known as ‘the collar’.
Discounted Rate
Some lenders offer a discount on the rate they normally charge borrowers for a limited period at the start of the mortgage. After the discount period the mortgage reverts to a standard variable rate. The important thing to keep in mind is the amount by which your payments will increase at the end of the discounted term, as this could be a substantial amount.
Tracker
A tracker mortgage works in a similar way to a discounted rate mortgage in that it follows the rates imposed by the Bank of England. Whereas the standard variable rate mortgage changes monthly or annually a tracker mortgage usually guarantees to follow changes in the bank base rate within 14 days of it happening. Thereby, the borrower benefits from both falls and rises in the interest rate sooner and is more likely aware as to any changes to the Bank rate as it is reported by the media.
Flexible
A flexible mortgage still follows the interest rates imposed by the Bank of England, but it allows you to vary or even suspend payments for periods. You can pay extra amounts to reduce the outstanding loan or build up a reserve to draw upon in the future. You may even be able to stop paying for a certain amount of time, which is particularly useful if money is tight over a certain period. lt may be possible to repay your mortgage early if planned effectively.
Lifetime Mortgages
Usually referred to as Equity Release Mortgages and are more suited to older home owners looking for an increase in income or a lump sum for a special event. Under Lifetime Mortgage plans you generally retain full ownership of your property but you obtain a loan secured on it. This loan can either be taken as a lump sum, or used to buy an income (such as an Annuity), and in some cases both. The loan lasts until you, or in joint cases the last survivor, dies or sells the home. Check that this mortgage suits your needs if you later plan to sell your home or if you want your family to inherit it.
Added benefits sometimes available
Cash Back
Some lenders offer a cash-back incentive where a lump sum is paid to the borrower shortly after a purchase has completed (traditionally about £250-£1,000). These deals can be appealing particularly to first-time buyers who may need to buy furnishings for their new home.
Free valuation survey fee
Some lenders offer a free valuation survey to borrowers which can be upgraded if a more thorough survey is required. These deals can be especially appealing to first-time buyers who may need all the capital they can save to meet their deposit requirements.
Free conveyancing services
Some lenders also offer a free conveyancing service to borrowers to cover the cost of all the legal work associated with buying a home. Usually a lender will only cover these fees if you use one of their chosen solicitors. These deals can be appealing and traditionally save borrowers hundreds of pounds.
