repaying the mortgage

Your mortgage will need to be timely repayed with interest, or else your home is at risk. The structure of repayments differ between mortgages and mortgage lenders, some of the common repayment options are shown below:

Discount Interest Rate Mortgage

A variable rate, of interest, but set at a set percentage amount below the lenders standard variable rate, usually for a short period of time. At the end of the initial period, the mortgage reverts to the lenders variable mortgage interest rate. There are often charges if you wish to pay back (redeem) your loan before the end of the discounted rate period. In some cases these charges also apply for a short period thereafter. The main factor influencing the interest rate on variable interest rate mortgages is the base rate set by the Bank of England. There is, however, no guarantee that a change in the Bank base rate will necessarily mean a change in mortgage rates. A tracker interest mortgage rate is set at a certain percentage above or below Bank base rate, and this percentage difference is fixed – so if the base rate drops by 0.25%, your Tracker Mortgage rate drops by 0.25% too and vice versa.

Fixed Interest Rate Mortgage

Set at a fixed rate usually an amount below the lender’s standard variable rate, usually for a short period of time. At the end of the set period, the mortgage reverts to the lender’s variable interest rate. There are often charges if you wish to pay back (redeem) your loan before the end of the initial incentive period In some cases these charges also apply for a short period thereafter.

Capped Interest Rate Mortgage

These rates limit your payments to fluctuations between a maximum and minimum interest rate for a set period of time. These rates may only be available at certain times depending on mortgage market fluctuations and may also incur a charge if you wish to pay back (redeem) your loan before the end of the capped/collar rate period.

Offset of Current Account Mortgages

This is a fully flexible mortgage, which allows you to keep balances (such as the mortgage, savings, and current account) in separate accounts, but, for the purpose of interest calculation, all balances are aggregated. Credit in savings and current account are offset against the mortgage, with interest only being charged on the reduced balance. This type of morgage gives you total flexibility to access your savings, whilst making significant long term savings on interest charges.

Cashback Incentives

With ‘cashback’ the lender usually gives you money when you complete on the mortgage. In return you are usually tied to the standard variable rate for a set period, and have to repay some or all of the cashback if you wish to pay back/ redeem your loan sooner.

Early Repayment Charges

Most mortgages have early repayment charges, these are typically within the product period. For instance, if you have a five year fixed mortgage, there may be a 3% charge of the loan to be repaid if you redeem the mortgage within those five years. Be careful! – some mortgages have redemption charges which are longer than the product period, so when you revert to the mortgage lender’s Standard Variable Rate you still don’t have the flexibility to move or re-mortgage without penalties. Always check your options before agreeing to a particular product. A mortgage lender or independent financial advisor can provide valuable advice to ensure you can avoid any such penalties wherever possible.