Mortgage Types Jargon Busting

What does Fixed-rate mean?

Fixed-rate is where you know exactly what you’re paying per month and the interest rate could be fixed from anywhere from two, three or five years, but it allows people to budget.

What is a Variable Rate?

Every lender has a Variable Rate, and they can basically set it when they want to, it doesn’t have to link to the Bank of England base rate. You don’t have the ability to budget on a monthly basis, as payments can increase or decrease.

If, at the end of your Fixed-rate period, you do nothing at all, you will automatically revert onto the lender’s Variable Rate. We, as a company, want to avoid this by helping you for the life of your mortgage.

What is a Tracker Rate?

A Tracker Rate is a variable rate which follows the Bank of England Base Rate and usually is a margin above the base rate, which can go up or down, depending on the decisions made by the Bank of England.

For example :

If the Base Rate is 5.25%, a mortgage lender offers you 0.5% above this rate than the payable rate is 5.75%, if then the Bank of England increase the base rate to 5.5%, then your payable rate increases to 6% and this will be 0.5% above the base rate

What is a Discounted Rate?

A Discounted Rate is purely a discount off the lender’s Standard Variable Rate. If the lender moves their Variable Rate, your payment will go up, but you’ll get an element of discount for a period of maybe two, three or five years. After that you will fall onto the lender’s Standard Variable Rate again, unless you do something about it.

What is an Offset Rate?

An Offset Rate is a mortgage in a savings account, and the two run alongside each other, with any savings balance off-setting the mortgage interest, therefore reducing your payments.

What’s the difference between Capital Repayment and Interest-only?

A Capital Repayment mortgage works like a personal loan, so each repayment is part capital, part interest. With this type of mortgage you’re guaranteed to have repaid everything that you owe at the end of your mortgage term, assuming that you pay your lender on time each month

As the name suggests, with Interest-only, you just pay in the interest each month. At the end of the mortgage term your lender will want the mortgage balance to be repaid. You would need a plan in place, such as an ISA or pension to repay the capital. Years gone by people used to pay into an endowment policy. 

For savings, investments and pensions we act as introducers only. 

What is a Flexible Mortgage?

Some lenders will offer you incentives to take their mortgages, and they may be an element of cash back that helps people with their initial setup fees, such as solicitors and things like that. 

Some flexible mortgages offer an overpayment facility, which is typically 10% of your outstanding mortgage balance. Depending on the lender, you may be able to overpay without fees. 

Another flexible mortgage feature is payment breaks. Typically during Covid, people were allowed to take payment holidays that wouldn’t affect your credit file, which you can’t do anymore. But some lenders have payment holidays in the mortgage agreement, which allows you to temporarily stop or reduce your mortgage payments.