Standard Variable Rate Mortgages
The Standard Variable Rate or SVR is a type of mortgage where the interest rate can change, influenced by the Bank of England base rate. Each bank sets its own standard variable interest rate, which is usually a couple of percentage points higher than the Bank of England’s base rate. SVR is one of the most common types of mortgages available with many leading lenders offering at least one and sometimes several with different rates and terms to choose from.
You are more likely to continue with this type of mortgage after completing a fixed-rate, tracking, or discount mortgage.
A lender can raise or lower your SVR at any time, and as the borrower, you have no control over what happens to it.
An advantage of this type of mortgage is that you generally have the freedom to overpay or switch to another mortgage at any time without paying a penalty. Another benefit is that the interest rate will generally go down if the Bank of England base rate goes down. The downside is that the fee can go up at any time and this is a concern if you are on a tight budget. The lender is free to increase the rate at any time, even if the Bank of England base rate does not rise.
Fixed Rate Mortgages
A fixed-rate mortgage means that the interest rate is fixed for the duration of the deal. Fixed-rate mortgages are suitable for those who want to budget and prefer to know exactly what their monthly expenses will be. You don’t have to worry about general interest rate increases, and you can rest assured knowing your payments won’t increase during the fixed-rate period. A prepayment fee may apply if the mortgage is paid off over the stated period.
In addition to standard variable rate and fixed rate mortgages, there are a few other types you may want to consider before choosing the one that’s right for you. You could even combine some of the options.
Discount Variable Mortgages
Basically, a discount mortgage offers an introductory deal. This type of loan is cheaper than the Standard Variable Rate at the beginning of your mortgage. It allows you to take advantage of a discount for a certain time at the beginning of your mortgage, usually the first 2 or 3 years. When the fixed term ends, the interest rate will be higher than the Standard Variable Rate.
The introductory discount rate is variable, as is the rate that follows it, so keep in mind that, like a standard variable rate mortgage, the amount you pay is likely to change based on the Bank’s base rate. of England for the duration of the mortgage. Also keep in mind that the discount offered at the beginning can be very good, but you have to look at the general rate that is offered.
A prepayment fee may apply if the mortgage is paid off during the discount period.
mortgage tracker
With Tracker Mortgage, the interest rate is linked only to the Bank of England base rate. If the Bank of England base rate rises, so will the interest rate you must pay. If the Bank of England base rate falls, your monthly payments will also fall. By comparison, the interest rate on a standard variable rate mortgage is similarly pegged to the Bank of England base rate, but can also be changed by the mortgage lender whenever they want and for any reason. With Tracker Mortgage, you are guaranteed that the rate will only follow the Bank of England rate and will not be influenced by any other factors.
Flexible Mortgages
This type of mortgage is designed to fit your changing financial needs. It can allow you to overpay, underpay, or even take paid vacations. You may also be able to make lump sum refunds without penalty. If you make overpayments, you may also be able to borrow again. However, to allow for all this flexibility, expect the interest rates charged on Flexible Mortgages to be higher than most other installment mortgages.
Capped Rate Mortgages
Similar to standard adjustable-rate mortgages, rate-limited mortgages offer you a variable interest rate. The difference is that your rate will be capped. This guarantees that the rate will not exceed a certain amount.
Sounds like a great deal, but there is a downside. The bank will initiate the mortgage with a higher interest rate than the normal standard variable rate or fixed rate. This is to cover the bank in case future interest rates rise above the rate they have set for you.
Also, the caps tend to be quite high, so the Bank of England base rate is unlikely to exceed them over the life of the mortgage.
Since the bank can adjust the rate on this mortgage at any time up to the cap level, it’s best to think of the cap as the maximum amount you might have to pay each month.
Compensated Mortgages
Offset mortgages are sometimes known as checking account mortgages. They link your bank account to your mortgage. If you have savings, they will go towards the mortgage balance. For example, if you have £20,000 in savings and a £200,000 mortgage, you’ll pay interest on the £180,000 balance. You won’t receive any interest on your £20,000 savings, but you won’t have to pay interest on your £20,000 mortgage.
Some offset mortgages are linked only to your checking account, while others are linked to both your checking and savings accounts. Offset mortgages are available in fixed rate offerings as well as a variety of variable rate offerings.