Interest Rate Options


Interest is the amount of money a lender will charge you for the loan and there are a number of different ways that lenders will charge you this rate.

Standard Variable Rate (SVR) Standard Variable Rate is the rate of interest charged by lenders. Most lenders will offer a similar variable rate although some are more competitive than others. The percentage charged is decided by the lender's internal system. This rate can go up as well as down.

Base Rate Tracker (BBR) Base Rate is a variable rate of interest decided by the bank of England. If you choose a BBR, it will work in exactly the same way as a SVR but the fluctuations in the rate will be determined by the Bank of England instead of the lender you have chosen.

Fixed Rates A fixed rate of interest means that if interest rates go up or down your monthly payment will stay the same. You can choose a fixed rate for between 1 and 25 years. Generally the longer you want to fix the rate, the higher the rate will be. The idea of a fixed rate is to offer security over a specific period. If interest rates go above your fixed rate you will be making a saving however if interest rates fall below your fixed rate you will be paying more than you would be paying had you chosen a variable rate of interest.

Discounted Rates A discounted rate is the Standard Variable Rate of interest normally charged by the lender with a % discount for a period of time. For instance, a 2% discount means you will pay 2% less than the lender's SVR for the next two years after which you will go back up to the normal rate. If you choose a discount, your monthly payments may go up as well as down just as with the standard rate.

Capped Rate A capped rate is a variable rate of interest, which can also go up as well as down, but if the variable rate increases beyond the cap, then the rate you pay will not exceed the capped percentage.

Product Options

Lenders offer all kinds of products which are attractive in different ways. The important thing is to understand the advantages and disadvantages of each so that you can chose which one is best for you.

Flexible A flexible mortgage is a product which allows your monthly payments to fluctuate so that you can overpay or take a payment holiday without penalty. It is important that you choose a lender offering daily calculation of interest so that the effect of any fluctuation can occur immediately.

Current Account Mortgage This is a flexible mortgage which works just like a bank account. You can write cheques, set up standing orders etc. As long as you keep within your repayment schedule, you can withdraw money or pay extra in as much as you like.

Buy to let A buy to let mortgage is a product offered by lenders to those who wish to buy a property that they can let as an investment. Generally these products carry a higher rate of interest than a residential mortgage but lower than a commercial one.

Cashback This is an amount of money paid to you by a lender as an incentive for you to take their mortgage.

Self Certification Some lenders offer loans on a basis of self-certification. This means that you do not have to prove your income in the usual way. This type of product was originally designed for the self employed but some lenders will now offer them to employed applicants as well. The lender may require a reference from your employer/accountant stating your occupation and how long you have been trading. If you think you would benefit form this type of product, please ask one of our advisers.

Non status Some lenders are prepared to offer non-status products. This means you will not be required to prove your income in any way and no references will be taken up. Generally these products are more expensive than conventional ones as the lending risk is higher.

Other things to bear in mind

Rates of interest can go up as well as down but, as well as this, there are other less obvious financial considerations to be taken into account.

Arrangement Fees An arrangement fee is a fee charged by the lender to arrange your mortgage. Not all lenders charge a fee and many of the ones that do will add the fee to your advance.

Redemption Penalty Period If your mortgage has a redemption penalty period, it means that if you try to repay part or all of the money borrowed within the period, you will be charged a penalty. Sometimes this can be a considerable sum so that paying off a mortgage can actually be very expensive. Your mortgage advisor will explain to you any redemption conditions that apply to the mortgage products you are interested in. Usually it is better to choose a product with a minimal redemption penalty period sot that you can change your mortgage as often as you need without incurring a penalty.

HPAC / MIG This stands for Higher Percentage Advance Charge, sometimes known as a Mortgage Indemnity Guarantee. This is an insurance premium charged by the lender to insure them against loss should they have to repossess and sell the property for less than you owe. General the premium is a one-off payment which can be added to the loan at the start of your mortgage. Be aware that, although you are paying the premium, should the lender have to make a claim, you will still be liable to repay any shortfall to the insurance company. Some lenders will now pay the premium for you as an incentive for you to take their mortgage.

Valuation / Survey All lenders will require a basic valuation to be carried out on the property to be mortgaged to be sure that it is suitable security for the loan. It is also possible to obtain a fuller report such as 'A HOME BUYER' or 'FULL STRUCTURAL SURVEY'. Some lenders will offer a free basic valuation service, others will charge a fee determined by the value of the property, and some will charge a fee and then refund it when you draw the funds from them.

Insurance All lenders will insist you insure the property you are buying. Most lenders will allow you to arrange your own insurance. However they may charge an administration free to check the insurance cover is adequate. Some lenders require you to take out their own insurance to qualify for certain products. You can check the compulsory insurance requirement on the illustration. If you would like a quote or would like us to arrange insurance for you, please call: 01425 627603.

Life Insurance Most lenders would like you to take out at least basic life insurance for the amount borrowed, although this is rarely compulsary. We will advise you of the lender's requirements on the application and refer you to the relevant IFA if required.

LTV Loan to Value is a percentage of the value of the property you are mortgaging.
For example, if you are borrowing £60,000 for a property worth £100,000, your LTV
will be 60%. Some lenders offer you an incentive if your LTV is low.



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Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.