The types of mortgage product include:
The variable rate mortgage is the traditional and most widely available product. The level of repayments varies with interest rates generally. The advantage is that you know you will not be paying more than the prevailing rate. However the level of monthly payments can be unpredictable. Discounts or Cashbacks may be available dependent on the Lender.
With a fixed rate mortgage you have the advantage of knowing that your household budget will not be affected by changes to your repayment level for the period the rate is fixed. This could represent a cheap option if interest rates rise, although if rates drop substantially, you could be paying more than the prevailing rate. At the end of the fixed rate period your loan will normally switch to the standard rate.
A capped rate mortgage provides the security of a fixed rate with the advantage that if interest rates fall below the capped rate, the amount you pay also goes down. The rate you are initially quoted is the ‘cap’ and this will not increase if the standard variable rate rises above that level. The capped rate will normally run for a fixed period after which the rate will switch to the standard variable rate.
There two types of repayment methods:
You pay off the interest and capital over the life of the mortgage. In the earlier years, you pay mostly interest, but the amount you owe reduces more rapidly in the later years. The outstanding loan will become repayable in the event of death and at MFS we will be happy to arrange a suitable product, which will cover you in this eventuality.
By this method you pay only the interest due on the loan to the lender. The capital is repaid at the end of the mortgage term from the proceeds of a maturing investment or savings plan. MFS will be happy to advise on a suitable savings plan, which will also incorporate life cover, so that the outstanding loan is covered in the event of death.