Residential Mortgages

The "UK Residential Mortgage Market" is one of the most competitive markets in the world. There are a wide range of banks, building societies and mortgage companies offering a colossal range of mortgage and mortgage related products. Enabling the applicant to seek the best mortgage deal for their needs with relative ease.

Residential Mortgage Repayment Methods

Repayment mortgages: Also known as capital and interest mortgages. The borrower repays a little of the capital along with interest with every repayment made. Gradually paying more and more until the loan is paid off.

Interest-only mortgage: All the repayments are towards the interest. The applicant will need to set up a separate savings or investment fund like an endowment policy. This savings plan is designed to assist the borrower in repaying the capital as a lump sum at the end of the mortgage term.

The Types of Mortgage Interest Rates

Standard variable rate:
The rate of interest chargeable fluctuates depending on the lender’s current rate. The lenders current rate is normally linked to the base rate set by the Bank of England. Therefore if the interest rates increase, the borrowers mortgage repayments will increase and visa versa.

Tracker:
Tracker rates are a variant of a variable rate loan. The lender ‘tracks’ the rate at a set amount above or below the Bank of England base rate. The Interest rate fluctuates in line with any increases or decreases of the base rate.

Fixed rates:
The interest rate is fixed at one rate for a period of time. Often used by mortgage companies in the hope of attracting your attention. This can be a good opportunity to help you budget during the first few years of the mortgage. Additionally they protect the borrower from any imminent rises in the interest rate. But you could end up paying over the odds if the base rate is lower than the fixed rate during this period.

Capped rates:
These use the variable rate facility but specify a maximum level (‘cap’ or ‘ceiling’) payable, so you will pay less if the base rate is lower than this. Normally the capped rate applies only for a fixed period, after which the lender’s standard variable rate will be initiated.

Collared rates:
These are the opposite of capped rate. They are variable but won’t go below a certain level (‘collar’ or ‘floor’). Collared rates are normally used along with a capped rate or tracker. If rates are lower than the collar, you could lose out.

Discount rates:
In an act of temptation some lenders give discounts from their standard variable rate for a fixed period of time. The interest rate will increase at the end of the fixed discount period.

Standard variable rate with cash back:
The applicant receives a lump sum of money when they take out the mortgage. This is handy for those who don't have any cash to spare for furniture, décor or home improvements.

But remember your home is provided as the lender’s security for the debt (mortgage), so if you don't keep up the repayments you may have your home repossessed.

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