One of the most used payments towards housing is called a “mortgage”. A mortgage is a sustainable form of loaning used by purchasers to raise money to buy the property. The type of mortgage you use depends entirely on your situation and what’s suitable for you. According to a survey hosted by CML, only a third of mortgage owners apply for loans with a fixed interest rate while the others prefer variable rate interests where their interest rate is at no fixed number.
What’s the difference between a fixed interest rate and a variable interest rate?
A Variable Rate is certain types of mortgage rate that you are probably are going to get after finishing an introductory fixed, tracker or discounted deal. Some landlords also let you take out a mortgage on their Standard Variable Rate.
What is a Fixed Rate?
An interest rate is primarily used for things such as loans and mortgages and it’s a fixed number that stays the same for a term of the loan or a largely based period of time. A fixed interest rate might be a better option for someone who is in fear that overtime the interest rate would increase, causing more expenses than you anticipated at the beginning when you first took this loan out.
What is a Discount rate?
A discount mortgage is a type of variable-rate mortgage. The word ‘discount’ is implied since the interest rate is set at a discounted price below the lender’s standard variable rate (SVR) for a set period of time.
If you choose a Discounted Mortgage deal it would most likely last from two up to six years. However, if your discount mortgage ever comes to an end, then your “lender” will transfer you over to its SVR (Standard Variable Rate). This means you would be back to paying the standard interest rate your Bank has issued unless you inform them beforehand.
What is a Tracker?
A Tracker mortgage is another kind of variable rate but the only difference is that these types of mortgages “track” and follow the movements of different rates. Tracker Mortgages can be for a few short years while others are contracted for life. (This means you would be on it for the entire term of your mortgage.) Another thing to keep in mind is that some mortgage lenders (e.g. Banks, Companies,) can put you on to a tracker rate once you’ve just finished a Discounted Rate or an Introductory Fixed Mortgage deal.
What is an Offset Mortgage?
In recent years, the cut in rates have been beneficial to House Buyers all over the country, as Mortgage rates have been cheaper but did you know that you can save even more by considering an offset mortgage. However, this type of mortgage would only come in handy to buyers thinking about savings. How the deal works is that by “offsetting” your savings against what you owe on your mortgage, this helps you reduce the amount of interest you pay.
For example, if I had £150,000 in Mortgage and £50,000 in savings then with an offset you’d only need to pay of interest on the£ 100,000 difference therefore making paying mortgages even quicker.
Another bonus is that some Offsets even allow parents/relatives to link their savings account to their children’s Mortgage. But with this, the parent’s savings will continue to be in their own name and be open to them in the usual way.
What is an Interest Only Mortgage?
Well an interest only mortgage is harder to get since fewer lenders offer them but it consists of paying lower amounts of money monthly on your home loan but you aren’t actually paying off any of your intended debt. At the end of the paying term you will still have to pay the borrowed amount left of the loan. Also the further you get into the mortgage term; the interest bill will actually start to decrease because the loan gets smaller too.
So that’s all the key definitions of popular Housing Terms. Thanks for reading, if you have any questions, please leave them below and