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standard variable rate mortgage
Standard Variable Rate or SVR is a type of mortgage where the interest rate can change, influenced by the Bank of England’s base rate. Each bank sets its own standard variable interest rate which is usually a few percentage points above the Bank of England’s base rate. SVRs are one of the more common types of mortgages available, with many major lenders offering at least one, and sometimes several, to choose from with varying rates and terms.
You’re most likely to stay on this type of mortgage after you’ve completed a fixed-rate, tracker, or discount mortgage.
A lender can increase or decrease your SVR at any time, and as a borrower, you have no control over what happens to it.
One advantage of this type of mortgage is that you are usually free to pay more or switch to another mortgage deal at any time without paying penalty fees. Another advantage is that if the Bank of England’s base rate goes down, usually the interest rate will go down. The disadvantage is that the rate can go up at any time and this is worrying if you are on a tight budget. The lender is free to raise the rate at any time, even if the Bank of England base rate does not increase.
fixed rate mortgage
A fixed rate mortgage means that the rate of interest is fixed for the term of the deal. Fixed rate mortgages are suitable for people who want to budget and like to know exactly what their monthly expenses will be. You don’t have to worry about general increases in interest rates, and you can be safe in the knowledge that your payments won’t increase during the fixed rate term. An early repayment fee may apply if the mortgage is repaid during a certain period.
There are a few other types besides the standard variable rate and fixed rate mortgages that you can consider before choosing the mortgage that is right for you. You can also add some options.
discount convertible mortgage
Basically a discount mortgage offers an introductory deal. This type of loan is cheaper than the standard variable rate at the beginning of your mortgage. This allows you to take advantage of a discount for a set period of time at the beginning of your mortgage, usually the first 2 or 3 years. When the fixed term expires, the interest rate will be higher than the standard variable rate.
The introductory discount rate is variable and the subsequent rate is variable, so bear in mind that, as with a standard variable rate mortgage, the amount you pay is likely to change in line with the Bank of England base rate. mortgage. Also note that the initial discount offered may be great but you need to look at the overall rate offered.
An early repayment fee may apply if the mortgage is repaid during the grace period.
tracker mortgage
With a tracker mortgage the interest rate is fully linked to the Bank of England base rate. If the Bank of England base rate increases, you will have to pay the rate of interest. If the Bank of England base rate falls, your monthly payment will be reduced. By comparison the interest rate on a standard variable rate mortgage is similarly linked to the Bank of England’s base rate, but this can be changed by the mortgage lender whenever they wish to do so and for whatever reason. With a tracker mortgage you are guaranteed that the rate will only track the Bank of England rate and will not be affected by any other factors.
flexible mortgage
This type of mortgage is designed to accommodate your changing financial needs. This can allow you to get paid more, get paid less, or even take paid vacation. You may also be able to make penalty-free lump sum repayments. You may also be able to borrow back if you overpay. However, to enable all this flexibility it can only be expected that the interest rates charged on flexible mortgages are going to be higher than most other repayment mortgages.
capped rate mortgage
Capped rate mortgages, similar to standard variable rate mortgages, offer you a variable interest rate. The difference is that there will be a cap on your rate. This guarantees that the rate will not go above a certain amount.
This sounds great but it also has a downside. The bank will start lending at a higher interest rate than the normal standard variable rate or fixed rate. This is to cover the bank in case the future interest rates exceed the rate you have agreed upon.
Also the cap is quite high so it is unlikely that the Bank of England base rate will go above this during the term of the mortgage.
Since the bank is able to adjust the rate on this mortgage to the level of the cap at any time, it’s best to think of the cap as the maximum amount you can pay each month.
offset mortgage
Offset mortgages are sometimes referred to as current account mortgages. They link your bank account to your mortgage. If you have savings, they will go towards the balance of the mortgage. For example, if you have £20,000 in savings and a £200,000 mortgage, you would pay interest on the balance of £180,000. You will not get any interest on your £20,000 of savings but you will not have to pay interest on £20,000 of your mortgage.
Some offset mortgages link only to your current account, while others link to both your current account and savings accounts. Offset mortgages are also available on a range of fixed rate deals or variable rate offers.
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