There are different ways you can choose to have some control over how much interest you pay.
You can choose a fixed rate mortgage. This is where the initial interest rate is fixed at an agreed amount for a set period of time, commonly 1, 2, 5 or 10 years. After this fixed period ends your interest rate would revert to the lenders Standard Variable Rate (SVR) which may be much higher than your initial fixed rate. If rates rise during the fixed period your repayments will stay the same and you are protected from rate rises. Conversely, if rates go down, you lose out as your rate will not go down. Fixed rates are good if you want to know what your budget will be for the first few years of your term but can be a disadvantage if rates fall. It may be possible to change your mortgage during the fixed rate period but this could incur charges from your lender (Early Redemption Charges). At the end of your fixed period AMS will be happy to find a new fixed rate for you.
Fixed rate mortgages are popular with First Time Buyers and your AMS advisor will discuss with you what rates/fixed periods are available to suit your circumstances and frequently have access to rates not available ‘on the High St’. There will be other factors to consider with fixed rate mortgages such as set up costs, early repayment penalties and portability which AMS will be able to advise you on.
Alternatively, you can choose a variable rate mortgage. This is each lenders’ own standard rate (SVR) and is mainly influenced by the Bank of England base rate. However, standard rates can rise or fall on their own regardless of what the base rate does. Variable rate mortgages can be beneficial if rates are falling but the deals are not usually competitive.
A tracker mortgage is when the rate is a set amount above or below the base rate, and rises and falls with the base rate. Often the lenders will fix a lower ‘floor’ that your rate will not drop below, but in the case of rising rates there will not be a fixed ‘ceiling’ and as a result, rises are not limited. This type of mortgage can be beneficial for anyone who anticipates falling rates, but is able to deal with potential rises if necessary.
Discounted rates, similar to tracker rates, are based on a reduction on the SVR, run over fixed periods (eg 2 or 5 years), and fall and rise with the base rate. Whilst these start off as cheap rates they can of course increase if rates begin to rise.
Capped mortgages are based on a varied rate but with a ‘cap’ that prevents them rising above a certain limit. These rates can fall but not go up beyond their cap, are not currently popular and are only beneficial if the rates are expected to rapidly rise.
