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There
are currently thousand's of mortgage products available in the UK and finding the right one for you
can be a bit of a minefield. Being a completely independent mortgage specialist, Independent Mortgage Operation have
access to products from the whole marketplace, including many exclusive deals which cannot be obtained directly from
the lenders. Our advisers will use our search facility to source the best deal for you.
Below
is a brief description of the more common mortgage types to enable you to make a decision as to which mortgage would suit
you best.
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Variable Rate Mortgages |
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The interest rate changes when
the lender changes their lending rate. Variable rate mortgages are often recalculated annually. This means that any changes
to mortgage interest rates are not reflected in your monthly repayments until the lender's recalculation date. Variable rate
mortgages can be the lender's Standard Variable Rate or some other variable rate determined by the lender according to the
particular product. A variable rate mortgage allows you to take advantage of any falls in interest rates, but any saving here
must be balanced against the risk of future interest rate rises. |
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Fixed Rate Mortgages |
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The interest rate is fixed for
a specific period, which can be from a few months to the full mortgage term. Repayments are not affected by fluctuations in
the prevailing variable rate, so if the variable rate drops below the fixed rate your repayments will remain the same. This
type of mortgage gives you the security of knowing exactly what your repayments will be for the term of the deal. After the
deal term the interest rate will normally revert to the lender's Standard Variable Rate. There may be financial penalties
if you decide to change your mortgage during the fixed rate period or even for a while after the scheme has ended. |
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Discounted Rate Mortgages |
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The lender gives a percentage
discount from their Standard Variable Rate for a length of time, which can be from a few months to the full mortgage term.
This type of interest rate is normally offered to first time buyers or people with high levels of equity. Generally, borrowers
with a larger deposit will be offered a greater discount. Discounts can help soften the financial blow of moving house, but
mean that after the discount period ends, repayments will rise sharply. Your repayments will fluctuate with interest rate
changes but will remain at the set level below the prevailing rate for the deal term. There may be financial penalties if
you decide to change your mortgage during the discount period or even for a while after the scheme has ended. |
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Stepped Rate Mortgages |
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Stepped Rate mortgages come
in various forms. They can be discounted for a number of years, with the discount rate reducing during the scheme period,
or even short-term fixed rates followed by a discounted period. Some schemes even offer a combination with a cashback to help
with moving costs. Many schemes are only available on an exclusive basis, so if you are interested in this type of
deal, contact Independent Mortgage Operationfor the latest 'Best Buys'. |
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Capped Rate Mortgages |
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The maximum rate of interest
you pay is fixed for a certain period of time. If the interest rate rises above the set capped rate, your repayments will
remain at the capped level. If they drop below the capped rate, your repayments will also fall in line with the lower interest
rate. This type of interest rate gives a level of security should the base rate rise but also takes advantage of lower interest
rates should they fall. After the deal term the interest rate will normally revert to the lender's standard variable rate.
There may be financial penalties if you decide to change your mortgage during the capped rate period or even for a while after
the scheme has ended. |
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Cashback Mortgages |
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With a Cashback mortgage, the
lender can offer on single cash payment once the purchase or remortgage is completed. This can amount to several thousands
of pounds, which can be used to help towards moving costs, to pay for home improvements or buy new furniture. Cashbacks can
also be staged over a number of years or even combined with discounted or fixed rate mortgages. The lender will normally require
you to pay back the cashback if you decide to move your mortgage within an agreed period of time. |
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Base Rate Tracker Mortgages |
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The newest type of mortgage.
The interest rate is variable but set at a premium (above) the Bank of England Base Rate for a period or even the term of
the mortgage. The interest rate fluctuates with bank base rate fluctuations and usually change immediately following a bank
base rate change. The biggest advantage of this type of mortgage is that, usually there is little or no redemption penalty.
This also means that interest can be saved on the mortgage without penalty, by overpayments, and these savings can be quite
significant. |
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Flexible Mortgages |
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This type of mortgage is relatively
new. The interest rate can be discounted, fixed, capped or variable, but has the big advantage that it is calculated daily
or monthly instead of annually. This means that any capital repayment of the loan will affect the interest charged on the
outstanding balance immediately. By making regular overpayments, the interest saved on the mortgage over the term can be quite
significant. Also, most lenders will allow funds to be drawn from the account up to the original mortgage balance or even
allow payment holidays. |
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Current Account Mortgages |
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A
current account mortgage is a combination of a flexible mortgage and a current account. The lender sets a maximum borrowing
limit on the account, which includes the balance of the mortgage. As long as the borrower remains on course to repay the mortgage
before they retire, they can increase their borrowings by withdrawing money from the current account. A cheque book is issued
to facilitate this and money can be withdrawn for any purpose provided the maximum limit is not exceeded.
Lenders
normally require borrowers to pay their salary into the current account each month and calculate interest on a daily basis.
Any money paid into the account is set against the mortgage and any which is left over at the end of the month reduces the
outstanding balance on the account. Providing the outstanding balance is reduced regularly, this would have the same effect
as making an overpayment on an ordinary flexible mortgage, therefore potentially saving thousands of pounds over the life
of the mortgage. |
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