Financial jargon made simple part 3

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Last time I was talking about how to pay for your mortgage, this week I would like to talk about mortgage schemes.

    First it’s best to talk about what’s called the standard variable rate. This is set by the bank or building society and they’re all different. Normally they’re at least 1.5% over the bank of England base rate and it’s up to the bank or building society what they want to charge.

    You wouldn’t normally choose the standard variable rate but you need to know what it is to understand some of the other schemes.

 

Discount Rate

Lenders will discount their standard variable rate to offer you a competitive interest rate and the discount will last for a set period of time, typically 2, 3 or 5 years.  The advantages are that you will benefit from any drops in the standard variable rate. The disadvantages are it’s hard to budget because your monthly payment can go up as well as down.

 

Tracker rates

These track the bank of England base rate, so instead of the lender deciding when the rate goes up or down the bank of England does instead. The lender will offer you a rate which will be for example be 0.25% below the Bank of England rate, again for a set period of time. Same as with discounted rate the disadvantages and the advantages are similar.

 

Fixed rates

Does exactly what it says you get a fixed rate for a set period of time, this is great for first time buyers and the more cautious person. The advantage to this scheme is you know exactly what you’ll pay per month. The disadvantage being if rates came down and you had picked a fixed rate when interest rates were high you would be stuck on a high rate.

 

These are the main types of schemes that are available for you to choose from. I hope this has helped. Any questions on this or any other financial information then please contact me.

 

ian.minns@imyourfa.co.uk - 07810 872634 Please feel free to email or call me with any financial questions you have. I do not charge a fee for my advice and it is strictly confidential.

 

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