07:13 08 December 2013
The economy and interest rates are always changing, so you must take care to fully understand the different types of mortgages and what they offer.
This offers a set interest rate for a specified period of time. This makes monthly budgeting much easier. The only gamble is that you don’t know if interest rates will have gone up or down by the end of the period.
Payments will go up or down depending on the interest rates of the mortgage lender. Starting with a low rate does not mean it will not increase.
These are called “tracker” mortgages because they are linked to the Bank of England. Your payments would vary according to the amount by which the Bank’s rates rise and fall.
With this type of mortgage, rates will go up and down but a maximum limit is set on how much you have to pay. So even if interest rates rise above that maximum, your fee will not.
These are often combine with tracker or capped mortgages. The “collar” means there is a minimum limit to how much you must pay.
This will offer an extra sum of money at the beginning of the mortgage, perhaps to use for the house, and is often used in conjunction with a variable mortgage.
With this you can save interest on your mortgage by “offsetting” the payments with a savings account. For example if you have a £120,000 mortgage and put £20,000 into savings with your lender, you will only pay interest on £100,000. You will not receive interest for that £20,000, but you won’t have to pay interest on it either.
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