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These are usually given as an incentive to new borrowers. The cash sum is usually paid on completion of the mortgage and the amount is sometimes a fixed amount or a percentage of the amount borrowed, for example 3% on a £80,000 mortgage is £2,400 cash back. Often, this can help borrowers with the expenses of buying your home. Your interest payments to the lender can be tracker, variable, fixed, discounted, collar capped or just capped.
Borrowers' circumstances can change much more rapidly and dramatically nowadays than was the case a few years ago. There is a growing demand for more flexibility in mortgages and some lenders are now offering many more options than before.
Some schemes allow you to make over payments, take payment holidays, and run your mortgage like a current account where you can have your salary paid direct into your mortgage account. The benefit is that interest is often calculated daily and by making over payments can reduce the overall cost of your mortgage and enable you to repay the amount borrowed earlier than the term originally agreed with the lender.
From time to time lenders offer capped rate mortgages. This means that the lender guarantees that your interest payments will never rise above the capped rate for a specified period of time. However, if rates fall below the capped rate then your rate will also fall to the lower rate. After the capped rate period your rate will usually revert to the lenders standard variable rate.
From time to time, many lenders will offer fixed rate mortgages, where it is guaranteed that the interest rate will remain fixed for a stated period. This gives the borrower a period of certainty about their mortgage payments. After the fixed rate period your interest rate will usually revert to the lender's standard variable rate.
In order to attract you as a customer, many lenders offer discount mortgages, which, as the name suggests, means you will receive a discount off the lenders standard variable rate stated for a period of time, for example 2% discount for 2 years. This has the effect of reducing your monthly payments for the period selected, after which your mortgage will revert to the lenders standard variable rate. It is important to note that discounted rates are not fixed, so there is no certainty of payment like fixed rates.
Your monthly payments may increase or decrease in much the same way as a variable rate mortgage.
This is probably the most common type of mortgage. The rate of interest charged is not fixed but varied. Rates are largely determined by the Bank Of England base rates and therefore, increase or decrease in line with the movements in these rates. Choosing a variable rate mortgage means that the borrower has no control over what the monthly payments will be.
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