Standard Variable Rate Mortgages
The Standard Variable Rate, or SVR, is a type of mortgage where the interest rate of the Bank of England can change, which is affected by the base rate. Each bank sets its own standard floating interest rate, which is usually a few percentage points higher than the Bank of England’s base rate. SVR is one of the more common types of mortgages available, with many leading lenders offering at least one lender and sometimes different rates and terms to choose from.
You will most likely continue with this type of mortgage after you finish Fixed Rate, Follower or Discount Mortgage.
A lender can raise or lower its SVR at any time, and as a borrower, you have no control over what happens to it.
One advantage of this type of mortgage is that you are usually free to overpay or switch to another mortgage agreement at any time without any penalty fees. Another benefit is that if the Bank of England base rate falls, the interest rate will usually fall. The downside is that the rate can increase at any time, which is a concern if you’re 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 increase.
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 know exactly what their monthly expenses will be. You don’t have to worry about general increases in interest rates and you can be safe knowing that your payments will not increase during the fixed rate period. An early repayment fee may apply if the mortgage is repaid in a fixed period.
In addition to the Standard Variable Rate and Fixed Rate Mortgages, there are a few other types you may want to consider before choosing the right one for you. You can even combine several options.
Discounted Variable Mortgages
Basically, a Discount Mortgage provides a promotional opportunity. This type of loan is less expensive than the Standard Variable Rate at the start of your mortgage. It allows you to get the discount for a certain period of time at the start of your mortgage, usually the first 2 or 3 years. When the designated period expires, the interest rate will be higher than the Standard Variable Rate.
The initial discount rate and the rate that follows it are variable, so keep in mind that the same as a Standard Variable Rate Mortgage, the amount you pay will vary in line with the Bank of England’s base rate over the term. mortgage. Also note that the discount offered at the beginning can be very good, but you need to look at the overall price offered.
An early repayment fee may apply if the mortgage is repaid during the discount period.
With a Tracker Mortgage, the interest rate is solely dependent on the Bank of England’s base rate. If the Bank of England’s base rate goes up, the interest rate you have to pay also goes up. If the Bank of England’s base rate drops, your monthly repayments will decrease. The Standard Variable Rate Mortgage interest rate is similarly linked to the Bank of England’s floor rate, but can also be changed by the mortgage lender at any time and for any reason. With a Tracker Mortgage, it is guaranteed that the rate will only track the Bank of England’s rate and will not be affected by any other factors.
This type of mortgage is designed to meet your changing financial needs. It can allow you to overpay, underpay, or even take payment holidays. You can also make lump-sum payments with no penalty. If you overpay, you can borrow it back. However, to provide all this flexibility, interest rates on Flexible Mortgages can be expected to be higher than most other repayment mortgages.
Limited Interest Mortgages
Limited Rate Mortgages, similar to Standard Variable Rate Mortgages, offer you a floating interest rate. The difference is that your rate will have an upper limit. This ensures that the rate will not rise above a certain amount.
It sounds like a big deal, but it has a downside. The bank will start the mortgage at a higher interest rate than the regular standard variable rate or fixed rate. This is to cover the bank if future interest rates go above the rate they limit for you.
Also, the upper limits tend to be quite high, so the Bank of England’s base interest rate is unlikely to rise above that for the duration of the mortgage.
Since the bank can adjust the rate on this mortgage at any time up to the cap, it’s best to think of the cap as the maximum amount you may have to pay each month.
Offset Mortgages are sometimes known as Current Account Mortgages. They tie 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 will have to pay interest on the £180,000 balance. You do not receive any interest on your £20,000 savings, but you do not have to pay interest on your £20,000 mortgage.
Some Offset Mortgages are only linked to your current account, while others are linked to both your current and savings accounts. Offset Mortgages are also available in fixed rate deals or a range of variable rate offers.