Mortgages & Home Finance How To Find The Best Mortgage

Date Published:

03/06/2008

Which Type Of Interest Rate?

Whichever mortgage you choose, you'll then need to look at the interest-rate deals on offer:
Fixed
Variable - if so, tracker, discounted or capped?

Fixed-Rate Mortgages

With a fixed-rate deal your payments are the same for a fixed period. This means no matter how high interest rates go, your payments will not go up. On the other hand, if interest rates fall below the fixed rate, you don't benefit from lower monthly payments.

Fixed rate deals are popular because they make it easier to budget and avoid any nasty surprises. But in return for this security blanket of a mortgage, you will be tied in for the length of the deal. If you want out early, you will usually have to pay a hefty fee. At the end of the fixed term, the rate will automatically revert to the lender's standard variable rate.

Tracker Deals

With a tracker deal, the amount of interest you pay every month is usually tied to the interest rate set by the Bank of England (or base rate). Lenders usually offer trackers at a preset percentage above the base rate. If it goes down, you get the benefit straight away. If it goes up, your monthly repayments will increase. There are lifetime trackers which last the full term of the mortgage, and those that run over shorter periods and then revert to the lender's standard variable rate.

Discounted Mortgages

Discounted mortgages offer a discount off the rate of either the lender's standard variable rate or a lifetime tracker. Usually, the discount only applies for the first two or three years, during which time you are tied in with early repayment charges. When the discount runs out, your rate reverts to either the lifetime tracker or lender's standard variable rate.

The Standard Variable Rate (SVR)

This is the lender's normal rate - without any discounts or deals - and is entirely at their discretion. Your payments go up or down when their rate changes.

Capped Rate Deals

A capped rate deal combines the best of fixed and tracker mortgages. The lender sets a maximum limit on the interest rate you'll pay during the deal period. So the rate you pay is guaranteed never to rise beyond a certain point no matter what. But if interest rate falls below the cap, the rate you pay should also fall. Capped rates are often less competitive than fixed rates and trackers because of this flexibility. And some lenders also fix a minimum interest rate (or collar) you'll pay during the deal period.

Mortgage Extras

Flexibility? Many mortgages allow you to overpay, underpay, take payment holidays and borrow extra. If your income fluctuates monthly or if you are keen to pay off your mortgage debt as early as possible, check the deal you're interested in has built-in flexibility.

Cashback? Is the lender offering to pay you money (three to five per cent of the amount you want to borrow) shortly after you take out a loan with them? That's sweet but keep your eye on the really important criteria when choosing your mortgage! And remember, if you move lender in the early years, you must repay some or all of the cashback you received.

For More Information

Visit Moneymadeclear to download a copy of the Financial Services Authority's free and impartial leaflet No selling. No jargon. Just the facts about mortgages (or ring 0845 606 1234).

Check out the mortgage calculator, loans, credit cards & savings comparison tools

The views represented in this article are those of the author and not of Channel 4. The purpose of the article is to provide general information only and does not constitute financial, investment, legal or other advice.You should not rely on any information provided in this article and you should always seek out independent professional advice relevant to your own particular circumstances.