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Mortgage Rates

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Mortgage Rates

When applying for a mortgage, consideration needs to be given to the interest rate and other charges which may be applicable.

There are four main options with regard to mortgage interest: fixed rate, capped rate, discount rate and variable rate.

• A fixed rate mortgage is when the repayable interest remains at a fixed level for a certain length of time, regardless of market trends. At the end of the fixed rate period, the interest rate is converted to the lender’s standard variable rate (SVR).
• A capped rate mortgage is when a lender caps the repayable interest rate at a maximum level; if the SVR drops below the capped rate, the interest payable is based on the lower variable rate whereas if the SVR rises above the capped rate, the interest payable is based on the capped rate, and not the higher SVR.
• A discount rate mortgage features a variable interest rate, but with a fixed discount for a certain period of time e.g. a variable rate of 5% with a discount of 2% means that the interest payable is 3%. The discount value of 2% remains constant regardless of the variable rate.
• A variable rate mortgage features interest rates that are constantly varying in accordance with market conditions.

Early Redemption Charge

Lenders will apply this charge to protect their own interests from borrowers repaying a mortgage quickly. It is usually a number of years after issue of the mortgage before the lender sees any profit. The period during which an early redemption charge applies will vary, and the charge itself may be quite significant e.g. 6 months’ interest.

No Redemption and No Overhang

“No redemption” applies to a mortgage for which there is no early redemption charge, allowing the borrower to repay the mortgage in full at any time. “No overhang” applies to a mortgage with an early redemption charge lasting for no longer than the fixed, discount or capped periods of the mortgage. The borrower may complete repayment of the mortgage after this period without penalisation. A disadvantage of these schemes is that the interest rates offered by lenders are not usually very competitive.


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