Fixed Rate Mortgage
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The amount you repay the lender each
month can be at a fixed interest rate for a certain period of time,
regardless of the interest rate in the market place. It is common for
lenders to offer rates fixed for a period of 2 to 5 years, but shorter
and longer periods can be found in the market. At the end of the fixed
rate (or ‘benefit’) period the rate will normally convert to the lenders
Standard Variable Rate (SVR). It is normal for lenders to charge
up-front fees in the form of booking and/or arrangement fees. In
addition lenders frequently apply an Early Redemption Charge (ERC)
for fixed rate mortgages. This acts as a ‘lock-in’ making an often heavy
charge for borrowers paying off their mortgage early. Watch out – the
ERC can sometimes last longer than the fixed rate period e.g. a 3 year
fixed rate with a 5 year ERC. |
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Capped Rate Mortgage |
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A capped rate mortgage is very
similar to a fixed except that if the variable rate drops below the
capped rate, the borrower will make payments based on the lower variable
rate. However should rates increase the payments will be ‘capped’ and
will not rise over the capped rate. So as a rough ‘rule of thumb’ a
capped rate is better to have than a fixed if all other factors are
equal. Again, as with fixed rates, up-front charges and ‘lock-ins’ are
common. |
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Discounted Rate Mortgage |
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The Lender offers a discount on the Standard Variable
Rate (SVR) for a specific period of time. For example, the variable rate
may be 5% with a discount of 1.5%. The initial pay rate would therefore
be 3.5%. If the variable rate rose to say, 6%, then the rate payable
would rise to 4.5%. As the discount is linked to the standard variable
rate, the borrowers payments will increase, if rates rise – so there is
no certainty in budgeting. However should rates decrease the borrower
will benefit from lower payments. It is still possible to have up-front
charges for discounted products and an Early Redemption Charge is
common. With discount mortgages borrowers need to watch out for ‘payment
shock’. Some short term discount products offer a ‘deep discount’ eg. 4%
off for one year. In such circumstances the borrower will be facing a
significant increase in their monthly mortgage payment at the end of the
discount benefit period. [TOP] |
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Variable Rate Mortgage |
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Borrowers paying the Standard
Variable Rate will have their payments increase or decrease as the
lender adjusts the rate in accordance with market conditions.
[TOP] |
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THINK CAREFULLY BEFORE SECURING
OTHER DEBTS AGAINST YOUR HOUSE. YOUR HOME MAY BE REPOSSESSED IF YOU DO
NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. TYPICAL APR 7.50% VARIABLE.
Copyright © 2007 Abbey Mortgages Ltd. All rights reserved.
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