- Standard Variable Rate
- Fixed rate mortgages
- Discounted mortgages
- Offset mortgages
- Capped rates
Every mortgage lender has a standard variable rate – this is the basic rate that they use to link other deals to. The SVR is usually higher than the Bank of England base rate, and is the rate that loans are automatically switched to once the term of the deal has come to an end.
If you are on your lender’s SVR, you should check to see if you can remortgage to a better deal which would save you money on your mortgage payments throughout the year. Check MyMoneyDiva’s Mortgage Service provided by London & Country Mortgages below to see if you can save yourself some money.
When interest rates are at historic lows as they are now, you may find you cannot get a better deal, so consider your options carefully and use the services of a mortgage broker if you are unsure whether you are going to be better or worse off on a new deal. Call our mortgage line, or fill in the form to get a broker to call you back. You do not have to pay a fee for this service.
You need to consider all costs and charges that would apply, including legal fees, booking fees and completion fees, plus any amount you will have to pay the broker for his or her advice.
However, the MyMoneyDiva Mortgage Service provided by London & Country Mortgages is fee-free, and you can take a one minute mortgage check by answering three simple questions to see if you can save money on your mortgage right now.
The rates are guaranteed to be at a set level for a period of time, usually two, three, five, 10 or even 25 years. They are particularly useful if you are on a tight budget, or have simply stretched your budget as far as it will go to get the property of your dreams.
As interest rates are at historic lows, the chances are they will rise rather than fall any further, and if you want to be sure you are not going to find your monthly mortgage payments increasing, you will need to fix.
There are currently some good fixed-deals available, but as with all types of mortgage you should check that you will be better off on a new deal than you are on your existing deal when you take all of the costs and charges into account. Remember too that if you need to change your mortgage before the term of the deal is up, you may face an early repayment charge (ERC).
Of course, if your priority is knowing that you can afford to pay your mortgage for a period of time, then choosing a fixed rate mortgage is likely to be the right course of action. If you are not sure whether a fixed-rate is the right option, then get some independent financial advice.
If you are happy to take a chance on interest rates rising or falling, then you may get a lower interest rate by taking a discounted variable rate. But be sure that if interest rates rose significantly, you would be able to continue paying your mortgage.
A few lenders will allow you to offset savings held with the same bank against your mortgage, which can help to lower the amount you pay each month in interest by effectively reducing the amount you have borrowed.
By having a savings account linked to your mortgage you can reduce the payments you have to make, and by overpaying you can then reduce the term of your mortgage. For example, if you have borrowed £200,000, but have £50,000 with the bank in savings, then you will only pay mortgage interest on £150,000. But you will not be paid interest on your savings, so if you could get a better rate after tax than you are paying on your mortgage, it may be worth rethinking.
If you have a property that you rent out rather than live in, then you will usually need to have a buy-to-let loan from a lender to comply with their rules. Buy-to-let mortgages have become more competitive as an increasing number of lenders have offered them, but they are still likely to be more expensive than residential mortgages.
You will be able to get a variety of buy-to-let deals, discounted variable rates, fixed rates and so on.
Capped rate mortgages are not really in existence any more, but for posterity, they were mortgages with a rate that could rise and fall over the period of the loan, and for a set period it would not rise above a set level, the “cap”.
The cap was often set at a level which is usually slightly higher than the fixed rate mortgages that were around at the time. The idea of the cap was that if rates fall, you will benefit from that, but you also have a level of comfort in knowing that the rate will not rise above the set level. As and when the Bank of England base rate starts to rise, we may see the return of capped rates.