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Mortgage types in the UKAll mortgages in the UK are funded by organisations such as banks, building societies or credit unions. The government does not contribute to any of the lending. This ensures that the UK mortgage market is thus very competitive and forever changing tactics in order to secure business from its prospective borrowers. This has resulted in many types of mortgages being made available.Most of these banks, building societies and credit unions draw their money from money markets or deposits and therefore offer variable rates to their customers. These can be in the form of a standard variable rate set by the lender, or a tracker rate, (one that tacks the Bank of England base rate). Due to healthy competition between the lenders, pioneering incentives are always being created in order to appeal to borrowers to take up their particular mortgage loan. Some of these deals are listed below: Fixed rate. The interest rate stays the same for an agreed period ranging from anywhere between 2 and 10 years. Any term above 5 years tends to cost more to the customer, and this type tends to therefore be used less regularly than the shorter term alternatives. Capped rate. This rate is comparable to the fixed rate in that the interest rate cannot rise above the capped rate, however it can vary below. This can also vary when a collar is applied, (this is where a minimum rate is applied). Like the fixed rate this type is offered for anything between 2 and 10 years. Discount rate. This is where a discount is set on the standard variable rate over a period of time, typically 1-5years, (for example a 1% discount for 2 years). The rate can also be stepped for example 2% in year 1, 1% in year 2, and so on. Cashback mortgage. This is a lump sum normally provided as a percentage of the loan e.g. 5% Just to confuse you more these rates are sometimes combined. As the lender is often supplying the customer with a rate below the market the mortgage loan will almost definitely include an early repayment charge. |
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