There are many options to consider when applying for a new mortgage including Fixed Rate, Standard variable rates, Tracker and Discount. But don’t despair, our experienced mortgage advisers can talk you through all the options and you’ll be able to decide what suits you best.
Standard Variable Rate (SVR)
Standard Variable Rate (SVR) is the interest rate a borrower is charged on their mortgage by the lender if they are not on a specific mortgage deal. The rate is subject to fluctuations i.e. the monthly payments can go up & down. The lender does not usually charge an arrangement fee at the outset, or early repayment charges when the mortgage is repaid.
Tracker mortgages are variable mortgage rate schemes, but instead of the interest rate you pay being based on your chosen lender variable rate 'it 'tracks' an index, such as LIBOR (London Interbank Offered Rate), or more commonly Bank of England Base Rate. The Interest rate you pay is a set margin above or below the rate that is being tracked, depending on market conditions, and it changes as the rate moves. Currently, with bank of England Base rate so low, the margin is usually above that rate. With a Tracker rate your monthly mortgage payment increases if the rate being tracked increases and vice versa. At the end of the product period, the interest rate will usually revert to the lenders standard variable rate, which currently (December 2017) usually results in a higher monthly mortgage payment. There may be initial arrangement fees from the lender to set up this type of mortgage and early repayment charges if the loan is redeemed within the scheme period.
Fixed Rate - A fixed rate mortgage fixes your monthly mortgage rate for a set period of time, usually between 1 and 5 years. At the end of this time, the interest rate will usually revert to the lenders standard variable rate. This type of mortgage is popular with clients who like to have stability in their mortgage outgoings for a given period of time. Unfortunately, you will not benefit from any reduction in interest rates. There may be initial arrangement fees from the lender to set up this type of mortgage and early repayment charges if the loan is redeemed within the scheme period.
Discount - A Discount Mortgage has an interest rate where a discount is applied to the lenders standard variable rate. As the lenders standard variable rate moves up or down the discounted rate moves up or down by the same amount. Discount rate mortgages are often offered for a set period of time, usually between 2 and 5 years. There may be initial arrangement fees from the lender to set up this type of mortgage and If you redeem your mortgage during the discount period you would normally have to pay a redemption penalty to the lender.