Types of Mortgages - Fortune Network Mortgages Ltd

Standard variable mortgages
Fixed rate mortgages
Capped rate mortgage
Discount rate mortgage
Tracker mortgages
Cash-back mortgages
Flexible mortgages
Overpaying
Underpaying
Payment Holidays
Borrowing Back
Redemption Penalty
Calculating Interest Daily

Taking out a mortgage is one of the biggest financial decisions you will make and with a wide range of options to choose from across the market it can be difficult to decide which type of mortgage deal is going to be right for you.

We are experts in our field and will search for the most competitive mortgage products available, enabling you find the best deal; one that matches your own personal needs and circumstances.

Standard variable mortgages

A standard variable mortgage is based on the lender's basic mortgage rate, commonly known as the Standard Variable Mortgage Rate.

It is usually the rate that customers revert to after a fixed, capped, discount or tracker period ends.

This mortgage is regarded by some as the least complex mortgage type with the interest rate varying (rising and falling) usually in response to changes in the UK base rate. The base rate is set by the Bank of England and lenders are free to decide for themselves the amount that they will alter their own interest rates by in relation to these movements in base rate.

Fixed rate mortgages

A fixed rate mortgage provides guaranteed monthly payments for a predetermined period of time.

If you're the kind of person who likes certainty and the reassurance of knowing exactly what your monthly outgoings will be, then a fixed rate mortgage may be most suitable for you.

A fixed rate mortgage sets the interest rate that you will pay for a specified period, guaranteeing the amount payable each month for a fixed length of time.

Once the fixed time period expires your mortgage repayments usually switch to the mortgage lender's standard variable rate. This arrangement will enable you to more accurately forecast your budget during the initial years of your mortgage term.

In addition, if the interest rate rises above the fixed rate that you are paying, you will actually save money. However, the reverse of this is also true. If the interest rate goes down whilst the fixed rate deal is in place, you will end up paying more. You may have to pay an early repayment charge if you redeem this mortgage within the term you have specified, some lenders also may have an early redemption charge after the specified term.

Capped rate mortgage

A capped rate mortgage puts a maximum limit on the interest rate that you have to pay. You therefore gain the security of having a 'ceiling' or upper limit to the amount that the lender can increase the interest payable on your mortgage.

This period of capped interest is for a specified period only; typically between one and five years. At the end of the specified period your mortgage will usually revert to a variable rate.

Discount rate mortgage

A discount rate mortgage offers a percentage discount from the lender's normal variable rate for a set period of time.

The discount rates last from six months to about five years and generally the shorter the period of discount, the higher the discounted rate will be.

In addition, you should consider that sometimes lenders can attach redemption penalties for remortgaging after your discounted period has ended. You may have to pay an early repayment charge if you redeem this mortgage within the term you have specified, some lenders also may have an early redemption charge after the specified term.

Tracker mortgages

With a base rate tracker mortgage the rate of interest you pay is tied to the base rate set by the Bank of England.

Typically the tracker mortgage rate will be set as a percentage above the base rate and although the resulting interest rate is usually lower than a mortgage lender's standard variable rate, this will vary from lender to lender. A main advantage of a tracker mortgage is that the difference between the variable rate and the base rate is usually a lot smaller than the margin between an standard variable rate mortgage and the bank base rate so you will end up paying less overall.

In addition, if the base rate falls, the interest payments on your mortgage loan will fall accordingly, though most lenders have a minimum level below which any further base rate falls are not passed on. This is normally around 2-3%. Remember that the bank base rate can rise as well as fall which can make budget planning difficult. You may have to pay an early repayment charge if you redeem this mortgage within the term you have specified, some lenders also may have an early redemption charge after the specified term.

Cash-back mortgages

Cash-back mortgages are often aimed at first time buyers and the mortgage lender will offer a lump sum of cash at the start, or sometimes at an agreed point during the term, of your mortgage.

Usually the cash-back is offered as a package of benefits (e.g. linked with a discount). Mortgage lenders may offer a sum of money towards the cost of legal fees or survey charges. This could be, for example, £200 to £1000 as a flat amount, or a percentage of the mortgage loan.

In return, you typically have to agree to take the mortgage lender's standard variable mortgage rate. You may have to pay an early repayment charge if you redeem this mortgage within the term you have specified, some lenders also may have an early redemption charge after the specified term, in addition to this you may have to pay back the initial cash back advance, this is dependant on lender.

Flexible mortgages

There are many varying degrees of flexibility. In order to be truly flexible, a mortgage must allow borrowers to do the following:

Overpay
Underpay
Take Payment Holidays
Borrow back overpayments
Carry no redemption penalties
Calculate interest daily.

Some so-called flexible mortgages may only meet a couple of these criteria, while other all-singing, all-dancing mortgages allow you to do much more. So make sure you do your research before you choose the flexible mortgage deal that suits you best.

Overpaying

The vast majority of flexible mortgage borrowers make overpayments on their mortgages. This may seem like a strange concept, but it makes great sense. If you can get rid of your mortgage early you can save yourself tens of thousands of pounds in interest payments. So if you can afford to make some overpayments why not do so? And overpaying by very small amounts can help.

Underpaying

A truly flexible mortgage will allow you to pay less than the agreed amount - once you have made overpayments. Of course underpaying is not the best idea as it adds to the time it will take to pay off your debt, but it could come in handy in the odd month when your spending is increased.

Payment Holidays

Some flexible mortgage deals allow you to take a complete break from making mortgage payments for up to a year. This could be useful if you're thinking of starting a family, taking a sabbatical or even going on the cruise of a lifetime. Of course, you have to have built up sufficient overpayments to cover the period you take off. And the terms and conditions will vary. Some mortgage lenders may only let you take a couple of months' payment holiday each year. So check first if you think you might want this option.

Borrowing Back

Borrowing back overpayments you have made makes perfect sense if you need extra cash. The beauty of mortgage overpayments is that rather than putting any spare cash into a savings account and earning a couple of per cent interest on it, because the amount you over pay is taken off your mortgage you are effectively earning the mortgage rate on your savings. And, with the borrow back facility, it's as though your money was in an instant-access savings account earning that rate.

Early Repayment Charges

Redemption penalties do not apply to regular standard variable rate loans - you should be free to chop and change between variable rate loans when you choose as they are not the most competitive rates available. When flexible mortgages were first introduced you could only get them on variable rate loans, so redemption penalties did not apply. Plus while a traditional mortgage lender could charge you a fee if you wanted to pay off a lump of your mortgage (because they had calculated for you paying interest on that lump for a set number of years), that flew in the face of the flexible concept, which actively encourages people to pay off their mortgages as early as possible. Now there are some deals that are truly flexible but do carry short-term redemption penalties. These may be fixed rates or discounted rates, where redemption penalties apply during the special rate period.

Calculating Interest Daily

Fully flexible mortgages have interest calculated daily, and any payments and overpayments are credited to your mortgage account as soon as they are paid, so you are immediately paying interest on a smaller amount of debt. This saves you money in interest charges that would otherwise add up to a significant sum over a number of years. Traditionally, mortgage interest was calculated and applied annually in arrears, so you would be paying interest on the same amount of debt all year, even though you had been gradually decreasing it during that time.

Some lenders now offer standard mortgages which allow many of the benefits of flexible products and many lenders calculate interest daily also.

The overall cost for comparison is 8.4% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. APR variable and based on a usual case. A typical broker fee is £2100, but this is for a remortgage solution, it incorporates when necessary the solicitor's fees, solicitor's disbursements, our broker fee, processing costs and the property valuation fee, you pay no up-front fees when choosing this payment option.

Your home may be repossessed if you do not keep up repayments on your mortgage.