Let me continue the mortgage topic. In this post I’ll describe various kinds of mortgage rates, as the question of mortgage types are spoken about in details in Fizber Consumer Guide to the Most Popular Mortgage Loans. In the viewpoint of many, mortgages should be straightforward – you borrow money to buy a house and pay interest on the loan.
But after a few enquiries, you soon realize that it’s not so simple after all.
In a hugely competitive market, building societies and banks are continually updating and extending their range of mortgages. The list is already extensive enough to baffle all but the most determined.
The most important points are how you pay back the capital you borrow and how you pay the interest on it. See the list of most frequent mortgage rates types:
Variable rates – This means you pay the going rate on your loan. The mortgage rate changes every time interest rates change or, as in most cases, the overall effect of any interest rate changes is calculated once a year and payments are altered accordingly. Whatever kind of mortgage you start with, it is likely to change to variable rates at some point.
Fixed rates – The interest rate is fixed for the period agreed – often two to five years. These are ideal for budgeting or if you think rates might increase. You do not benefit if rates fall, and will face penalties if you try to quit. Very low rates may tempt you, but they can be used to trap you into paying over the odds. See check how long you will have to stay with the lender before you can switch without penalty.
Capped rates – These are fixed, but if rates fall you pay the lower rate. Such deals can be a good buy for budgeting.
Cash back deals – This is when lenders offer money back if you take out a particular product.
Discounted rates – Under this type of mortgage the borrower is offered a discount off the lender’s variable rate. The rate paid will fluctuate in line with changes in the variable rate. The discount applies over a set term.
The choice of the most suitable mortgage rate should depend on the answers to the following questions:
· How much can I afford to borrow?
This deals with such questions as “What will the cost be each month?” and “What fees will I have to pay?”
· How can I tell which mortgage rate is best for me?
· What is the best type of mortgage for me?
This deals with how to understand the jargon, such as “What do fixed rate, variable rate, discounted or low-start, and flexible mean?” and “Will this mortgage suit my circumstances now and in the future?”
· How should I repay it?
“Why are you trying to sell me an endowment policy, or a pension or an Isa?”, “Why is it best for my circumstances?” and “What commission are you being paid?”
· Can I make lump sum payments to reduce the size of the loan?
· Are there any redemption penalties?
· Does this mortgage come with compulsory insurance?
· What other charges will I have to pay?
· What happens if I can’t pay?
· What about the small print?
I do hope that the information was useful.