Discount
mortgages over the last few years have shown
to be very popular in the UK for re-mortgages
and property purchases as interest rates have
generally been quite low and stable. Though
past indications cannot guarantee future trends.
They work by having for a period of time the
"discount period" a set percentage
discounted from the standard variable rate or
the bank base rate normally off their standard
variable rate or bank base rate. So if the bank
of England base
rate rise or fall lenders will usually adjust
their mortgage rate, however the agreed discount
on the product will apply to the revised rate
until the end of the incentivised period. Then
the rate will revert to the lenders standard
variable rate.
For
the discount period early repayment charges
usually apply these may apply for the duration
of the discount period or they might apply for
a period beyond this date. Some discount deals
may have steps in them so perhaps for the first
year the discount rate will be very attractive
then reduce the level of discount each year
until the end of the total discount period.
Known as a stepped discount. Many lenders for
remortgaging offer free legal costs and valuation
though there is generally a lender's fee which
could be charge up front or added to the home
loan on completion.
Discount
deals potentially may help you to reduce monthly
mortgage payments. Discounted mortgage deals
aim to reduce the monthly mortgage payments
for a determined period (i.e. the discount period)
thus helping clients with their monthly budget.
Caution should be taken as rates with this product
are not protected from going up.
Though
caution should be taken if the borrow is stretched
and could not afford a rate rise for example
a first time buyer if they decided to move they
may find the early repayment charges high and
they may be tied into a deal with an uncompetitive
interest rate for some time. There can also
be a high jump in monthly payments when the
discount period ends and reverts back to the
lender's higher standard variable rate.
Tracker
Mortgage
The
tracker mortgage is very similar to a discount
deal. The tracker rate will float above the
bank of England lending base rate at a set rate
say for example 0.75% above the bank rate running
exactly inline with it whether it is rising
or falling. The change in rate should be very
quickly after the base rate has changed. Some
trackers will be set for the life time of the
mortgage. Many tracker deals can have flexible
features which can be very advantageous to the
borrower if used correctly. But they may also
carry early repayment charges.
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