variable rate mortgages

Variable Rate Mortgages

A variable rate mortgage is one that changes when the lender announces interest rate changes. So unlike a Fixed Rate, if the mortgage rate goes up then you will be paying more each month. Equally if it goes down then you pay less.

advantages of variable rate mortgages

* Your monthly repayments will fall with reductions in interest rates.

* Gives you flexibility.

disadvantages of variable rate mortgages

* Your repayments will rise with interest rates.

* Does not give give you the ability to budget for repayments. Hume Associates

flexible and current account mortgages

These types of mortgages have been introduced more recently. They have been introduced to cater for the changing patterns in working and life styles.

There are several attractive features one of the main ones is that interest is usually calculated daily rather than being applied monthly or yearly. This means that interest does not accumulate and therefore, monthly payments are kept to a minimum. This type of mortgage also allows over payments.

So if you decide that you wish to pay off a lump sum, you can do so and by doing so reduce the interest. This can make quite a big difference to how much you pay in interest over the course of the mortgage and allows you to pay the mortgage off early if you wish.

You can also draw down overpayments should you need the money you overpaid at a later date.

Current account mortgages group together all your borrowing and saving. This means that all your borrowings are at the mortgage rate, which is usually considerably less than personal loan and credit card rates.

Usually you have your savings held in this type of mortgage and your salary paid into it. This means that as interest is calculated daily, you only ever pay interest on the actual amount you owe.

advantages of flexible and current account mortgages

* Daily Interest

* Over-payment facility - potential to reduce amount paid in interest and reduce the term.

* Under-payment facility - particularly useful in times of hardship.

* Current Account Mortgages give good rates of interest on borrowings and savings.

* Current Account Mortgages ensure your interest payments are kept to a minimum.

disadvantages of flexible and current account mortgages

* These mortgages need to be managed carefully to take advantage of the benefits and to, more importantly, make sure they are repaid at the end of the period of the loan.

* This makes them less attractive to people who do not want to have to manage their mortgage.

* This type of mortgage could encourage people to over-stretch themselves on their borrowings.

dotted line LIBOR and tracker mortgages

These mortgages are a variation of a Variable Rate mortgage. They guarantee to be a certain percentage in excess of the London Interbank Ordinary Rate (which is the interest rate that the Bank of England lends to commercial banks) or the Bank of England base rate in the case of most Tracker mortgages.

So as the LIBOR or the Bank of England base rate change, the LIBOR or Tracker mortgage rate does by the same amount. If the Bank of England base rate were 5% and the Tracker rate guaranteed to be 2% greater, then you would be paying 7%. If the base rate were then to go up 1% to 6%, you would be paying 8% (i.e. new base rate (6%) plus the 2% guarantee).

advantages of LIBOR and tracker mortgages

* The interest rate you pay moves immediately that the base rate changes. Lenders rarely pass on changes to borrowers immediately.

* You are guaranteed the percentage rate that your loan will exceed the base rate by. This prevents you from suffering from your Lender becoming uncompetitive with their existing borrowers standard variable rate.

disadvantages of LIBOR and tracker mortgages

* You need to make sure you get a competitive guaranteed rate above the base rate and that the base that the lender uses is also competitive as this can, sometimes, be a rate set by the lender rather than using an independent rate such as LIBOR or Bank of England base rate.

* When rates rise, you are subject to the increase immediately.

Your property may be repossessed if you do not keep up repayments on your mortgage.

For more information on how we are paid for mortgages please click here