Everything You Need To Know About Various Kinds of Mortgage

If you are looking for a mortgage, you're most likely being confronted by a huge quantity of different forms of mortgage and terminology regarding them. This article will help you get directly to the point, because in reality there are only four main types of mortgage available. Additional kinds are either one of these four by another name, or not typically offered.

Fixed Rate

Fixed rate home loans will ensure that you pay a set interest rate for a specific or 'fixed' length of time. This is commonly between 1 and five years, although under certain circumstances the interest rate can be fixed for for a longer time. When the fixed time period has run out, you will start paying interest at the Standard Variable Rate.

Discounted Rate

Under the conditions of a discounted rate mortgage, the Standard Variable Rate of a mortgage lender is temporarily lowered or 'discounted' for a set period. This will generally be between 1 and five years. When the discounted time period finishes, you begin paying the lender's Standard Variable Rate of interest.

Capped Rate

With a capped interest rate home loan, the interest rate mirrors the lender's Standard Variable Rate except that there is a point above which the rate of interest you pay is guaranteed not to go over. This agreed level is better-known as the 'cap' and in common with the majority of introductory mortgage or remortgage deals will last between one and 5 years.

Flexible Mortgage

This is a type of repayment mortgage loan which lets you make regular overpayments and underpayments with out any penalties. This can be excellent should you find that your income has increased or you discover that you suddenly have some spare cash because you can make lump sum payments, again without penalty. This type of mortgage commonly has interest calculated daily instead of yearly. This means that each time you make an overpayment you immediately affect the quantity of interest you pay. Should you do this on a regular basis it is possible to potentially knock years of your mortgage loan term.

Tracker Mortgage

This is a variable rate mortgage where the interest rate follows the Bank of England base rate plus the mortgage lenders set rate. For example, if the Bank of England base rate is 3.75% the lender might set a further rate of 1-2% above this. You would consequently be having to pay 4.75 - 5.75% interest. If the Bank of England rate was to drop to 3.5% you would be paying 4.5 - 5.5%. Some lenders offer initial periods for tracker mortgages of as little as .75% above the base rate. Of course, as with all variable rate mortgages, the interest rate can go up as well as down.

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