Mortgage Basics 2

Fixed rates-

Fixed rates are what they sound like, they stay fixed for certain periods of time, usually 2, 3, 5, 7 or 10 years but they can sometimes last for the entirety of the deal depending on the lender. Beware that the longer the fixed rate, then the higher the rate will be.


The pros of the fixed rate are that you can budget accordingly with the security that the rate will never increase. The cons of the fixed rate are that you will avoid any savings if the rates decrease.

Tracker rates-

Tracker rates stay a few points above or below the Bank of England's base rate but follow its fluctuation exactly. So if the base rate drops or rises by 2 points, so will your tracker deal.

Offset mortgages-

Offset mortgages let you use any savings you have accumulated towards a deposit on your mortgage when it comes to working out the amount of interest you pay. For example, if you have a mortgage of 80,000 and you have savings of 15,000 then you will only be charged interest on 65,000. So this type of mortgage is only beneficial to people who save. Rates are higher for offset mortgages so are only recommended for people with savings over 10% off the mortgage deal.

Fees-

Fees are often unexpected when taking out a mortgage and are usually high due to it being more complicated than taking out a standard loan and the process involves more third parties. These include the lender, a solicitor and a surveyor.

The lender will charge arrangement fees for setting up the mortgage, the solicitor will charge for legal fees for writing up the legal documentation and the surveyor will charge for surveying and valuing the property.

You can also be charged for exiting the deal early if it is within the tie in period, this can be up to 3%. Also exiting the deal before the SVR kicks in can cost around 300, this has recently been deemed unfair and you can claim the money back.

By: Barry Loughran

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Mortgages are extremely complicated and you will need to seek professional advice as to which mortgage you require whether it be an offset mortgage or a standard fixed rate mortgage.