Mortgage Products

Standard rate mortgages

Each lender has its own standard interest rate that it charges for mortgages. This rate is higher than the Bank of England base rate, but roughly follows its upres and downs. This is known as the 'standard variable rate'. Different lenders charge different standard rates, which can vary widely.

Tracker rates

Base rate tracker mortgages, known more commonly just as 'trackers', follow the Bank of England base rate (the interest rate set by the Bank of England each month) at either a set percentage above or below.

Imagine the base rate (BBR) is .5%. A mortgage that is 1% above the base rate for two years will start off at 1.5%. If the base rate moves during the two-year period, the rate you'll pay will move with it, but always with a 1% margin. So if the BBR increased to 5%, you'd pay 6%. If it fell to 3%, you'd pay 4%.

Base rate trackers are available for anything from a few months to the term of the mortgage. In most cases the interest rate will be the BBR plus a set percentage.

Discounted rates

With a discounted mortgage deal, the fluctuations in the lender's standard variable rate (SVR) are mirrored in your own rate. This means that when the standard rate goes up and down, so will the interest rate on your mortgage.

For instance, a 2% discount off a 5% standard rate leaves you paying 3%. If the standard rate rises to 6%, you pay 4%. If it falls to 4%, you pay 2%.

Discount periods vary from a few months to as long as 25 years, although most are between two and five years. Generally, the shorter the period, the bigger the discount. At the end of the discount period, you'll revert to the lender's standard rate or to a base rate tracker.

Some deals offer stepped discounts - for example, 3.5% discount for six months then 0.5% discount for two and a half years.

Fixed Rate Mortgages

With a fixed rate mortgage the monthly repayment amount is fixed for a specified period irrespective of changes to the Bank of England's base rate or the lenders standard variable rate.

Fixed rate mortgage schemes generally last two to five years, although longer terms are available. At the end of the fixed rate the interest rate reverts to the lenders standard variable rate. An early repayment charge would apply if you chose to cancel your fixed rate mortgage within the fixed rate period.

Flexible Fixed Rate Mortgages

There are now some mortgage lenders that offer fixed rates with the flexibility to make unlimited overpayments without being charged an early repayment fee. These flexible fixed rates would only incur an early repayment charge if the mortgage was redeemed in full.

Cashback

With cashback mortgages, the lender will give you some money back either as a lump sum once your mortgage is set up, or as a set amount at regular intervals.

The amount of cashback you are eligible for will depend on the deal and, occasionally, the amount you have borrowed.

There are two main types of cashback deal. These are:

those that pay you a certain percentage of the amount borrowed. Most deals of this kind offer between 1% and 5%. So, say you borrow £100,000 and the cashback is 5% of the advance, you'd receive £5,000 on completion of your house purchase or remortgage
deals that pay a fixed sum. Most deals of this type pay between £100 and £1,000.

Flexible Rate Mortgage

Flexible rate mortgage schemes allow you to overpay and underpay without redemption penalties being charged. You can tailor your current financial situation to the mortgage payments that you make. When you have spare cash you can overpay and if necessary you can underpay, skip a mortgage payment or even borrow money against the capital repaid.

Not all flexible mortgages are the same. Some will restrict how much you can overpay during a set period, others will only allow minimum amounts and some will allow a maximum amount per month.

Restrictions can also apply to borrowing against the capital already repaid. In fact, some mortgages labeled as flexible do not allow you to borrow any money against your mortgage. If borrowing is permitted you should check how easy it is to access the cash you require.

Flexible Offset mortgages

There is a type of flexible mortgage that helps you to make even more of your money; the 'current account mortgage'. With this type of mortgage, your current account balance is offset against the outstanding balance on the mortgage. For example, if you have an outstanding mortgage balance of £100,000 and a current account balance of £5000, your mortgage interest will be based on an outstanding balance of £95000.

Offset Mortgage

Offset mortgages allow you to put all your money in one place - from your mortgage and loans to your savings and current account, giving you the flexibility to live your life differently.

With an offset mortgage you get the best of both worlds - the flexibility and value that comes with putting your money in one place and the security of being able to see and manage your finances any way you like.

Libor Mortgage

Libor mortgage, like the majority of mortgages on the market track a rate.

Unlike the majority of mortgages that track the Bank of England base rate, Libor mortgage track the London Inter Bank Rate.

These lenders, mainly sub-prime and self-cert lenders track LIBOR (the London Inter-Bank Offered Rate), the rate at which banks lend money to each other in the money markets. Most LIBOR mortgages track three month LIBOR.

Most LIBOR mortgages have a three-monthly rate review they are variable rate deals but are not subject to change as often as those based on a lender’s SVR or the Bank of England base rate.