Mortgages and mortgage advice

Commodore Finance Ltd

Because there are so many different types of mortgage products we thought that rather than just tell you which one to choose we would help you understand the benefits of each so that you can take part in the selection if you wish.

A fixed rate mortgage means you repay the lender each month at a fixed interest rate for a specified period of time, regardless of changes to interest rate in the market place. It is common for lenders to offer rates fixed for a period of 2 to 5 years, but shorter and longer periods can still be found. At the end of the fixed rate period the rate will normally convert to the lenders Standard Variable Rate (SVR).

Choose a type and read about it:-

Fixed Rate Mortgage

Discounted Rate Mortgage

Tracker Rate

Capped Rate

Variable Rate

Stepped

Libor

It is normal for lenders to charge up-front fees in the form of booking and/or arrangement fees. In addition lenders frequently apply an Early Repayment Charge (ERC) for fixed rate mortgages. This acts as a ‘lock-in’ making an often heavy charge for borrowers paying off their mortgage early.

The Lender will offer a discount on the Standard Variable Rate (SVR) for a specific period of time. For example, the variable rate may be 5% with a discount of 1.5%, making the initial rate 3.5%. If the variable rate rose to say, 6%, then the rate payable would rise to 4.5%. As the discount is linked to the standard variable rate, the borrower’s payments will increase, if rates rise and decrease if rates fall so there is no certainty in budgeting and clients choosing this type of mortgage should be of a more adventurous attitude towards risk.

It is still common to have up-front charges for discounted products and an Early Repayment Charge is common.

This is a form of variable rate that is linked to the movement of a prevailing rate such as The Bank of England Base Rate or London Interbank Offered Rate (LIBOR). The pay rate will be a set percentage amount above the relevant base rate for a specified period of time. For example if the tracker mortgage is set at 1% above The Bank of England Base Rate for 5 years and the base rate is currently 4.75%, the rate will work out at 5.75%.

If the base rate increases by 1%, the pay rate will increase accordingly. Also if the base rate is reduced, borrowers will benefit from a lower pay rate. Again customers choosing this form of mortgage product should also be of an adventurous attitude towards risk.

SVR Deal Rate Payable

Discount 7.25% 1% Discounted off SVR 6.25%

BOE Deal Rate Payable

Tracker 5.25% 1% Above BOE Base Rate 6.25%

A capped rate mortgage is very similar to a fixed rate mortgage except that if the variable rate drops below the capped rate, the borrower will make payments based on the lower variable rate. However, should rates increase the payments will be ‘capped’ and will not rise over the capped rate. Again, as with fixed rates, up-front charges and ‘lock-ins’ are common. A main disadvantage of this type of mortgage product is that they are not in abundance.

Borrowers paying the Standard Variable Rate will have their payments increase or decrease as the lender adjusts the rate in accordance with market conditions.

These products are suitable mainly for young professions such as solicitors – people who are on a lower wage initially but have the certainty that their wages will rise substantially. Some first time buyers also use this product to help get themselves on the ladder.

The mortgage will start off on a rate for example of 2% and will rise each year until the end of the specified period at this time the lender will usually lock you in for a period of time on the Standard Variable Rate.

The London Inter-Bank Offered Rate, is set by the Bank of England and represents the rate at which banks borrow from each other. Sub prime lenders specialize in these mortgages for those with an impaired credit record.

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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

We do not normally charge for mortgage advice, however this will depend on your circumstances. If a fee is charged our typical fee is £99.

This calculator is for guidance purposes only, figures may differ according to your personal circumstance.

Commodore Finance Limited is an Appointed Representative of Personal Touch Financial Services Limited which is authorised and regulated by the Financial Services Authority

Terminology explained