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LOAN & MORTGAGES DEFINITIONS

Variable Rate Loans

The rate of interest charged is not fixed but varies as general rates in the economy vary.
Thus if rates rise generally variable mortgage rates will usually rise and monthly mortgage payments will therefore increase. If rates fall generally variable mortgage rates will usually fall and monthly mortgage payments will therefore fall. There are usually no special redemption penalties if you pay off or transfer your mortgage.

Discounted rate Loans

The rate of interest charged is a fixed percentage below the normal variable rate for a specified time (e.g. 1% off for 2 years). Thus if rates rise generally discounted rates will usually rise and monthly mortgage payments will therefore increase. If rates fall generally discounted rates will usually fall and monthly mortgage payments will therefore fall. The new mortgage rate will continue to be a fixed percentage below the normal variable rate as that rate rises and falls. At the end of the discounted period the normal variable rate will apply. Lenders usually charge special redemption penalties if you pay off or transfer your mortgage loan during the discounted rate period and sometimes for a period after the discounted rate ends.

Fixed rate Loans

The rate of interest charged is fixed for a stated period (e.g. for two years or until 31/01/05).
Thus if general rates rise or fall in the economy there is no effect on monthly mortgage payments.
Lenders usually charge special redemption penalties if you pay off or transfer your mortgage loan during the fixed rate term and sometimes for a period after the fixed rate ends.

Cashback Loans

The rate of interest charged can be variable or fixed. A percentage of the amount borrowed will be paid to you when you complete your mortgage loan. There is usually a period during which a proportion or all of the cashback must be paid back if you pay off or transfer your mortgage loan.

Capped and/or Collared Loans

The rate of interest charged is variable but it cannot rise above a certain level (capped) even if general interest rates rise above that level. If general rates fall your mortgage rate should fall in line with other rates. If your mortgage is collared your mortgage rate will only fall to a certain level but will then stick at that level even if general rates fall further. Capped and collared schemes are sometimes used together. In this case your mortgage rate would rise or fall within a band as general interest rates varied. However your rate could not fall below or increase above the levels at which the cap and collar had been set.

Tracker Loans

The rate of interest charged is variable but is directly linked to an index, usually bank base rate. All variable rates are affected by bank base rate but the extent and timing of any change can be determined by the lender. With a tracker the rise or fall is automatic as bank base rate changes.

Flexible Loans

The rate of interest charged may be variable or fixed. However there may be a number of options built in to your mortgage allowing you to for example, overpay and therefore reduce your mortgage term, reduce your payments and extend your term, take mortgage holidays i.e. stop paying for a period. In some cases current accounts are linked to the mortgage account and any credit (positive) savings balances offset the interest charged on a proportion of your loan. Best mortgage deals from cfs Loans.

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