Three Types Of Mortgage

By Author: Bonny Kominek
Total Articles: 32
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If you''re looking to get that first rung on the housing ladder, then you may find yourself quite overwhelmed by the selection of mortgages available to you. Every lender offers a range of mortgages, so it can be quite confusing. However, there aren''t quite so many types of mortgages, and they''re actually quite distinct.

This article can give you a handy introduction to three of the most common types of mortgage available in the market. Meanwhile, you can check out Alliance and Leicester''s handy mortgage calculator if you would like to work out your repayments.

Fixed Rate

On a Fixed Rate the rate of interest will be ''fixed'' by the lender for the period of time, regardless of whether there are changes to rates in the wider market. When this period expires, the Fixed Rate will normally switch onto the lender''s Standard Variable Rate.

It''s quite common for lenders to charge up front fees for Fixed Rate mortgage arrangement in the shape of booking fees. It''s also possible that they will apply an early repayment charge, which will hit anyone who pays off their mortgage early with a penalty. Sometimes ...
... this charge can apply for longer than the Fixed Rate deal.

Discounted Rate

On a Discounted Rate, a borrower will receive a mortgage at an interest rate ''discounted'' against the lender''s Standard Variable rate for a period. You might have 2% off on your Discounted Rate. While the SVR may change, the discount against the rate will still apply, so it can change too.

As with a Fixed Rate, it''s entirely possible to have arrangement fees and early repayment charges. Before getting a Discounted Rate, you should consider ''payment shock''. For instance, if you have 2% discounted for two years, there might be a big jump in interest repayments when the Discounted Rate comes to an end.

Trackers and Standard Variable Rates

This is a variable rate that is linked to a rate such as The Bank of England Base rate. The rate will be a set amount above the relevant base rate for a specified period of time. It''s particularly attractive currently as The Bank of England''s Base Rate is very low.

Lenders will also offer a Standard Variable Rate, which is basically the rate that applies if the borrower has come off any of the deals specified above. The rate is adjusted in line with market conditions, although not specifically Libor, so borrowers can see there payments change when on an SVR. Bonny Kominek is the author of this article. Alliance