Interest rate information

Types of rates that you are likely to see at one time or another:

APR.

• APR
• Variable Rate Mortgage.
• Tracker Mortgage.
• Fixed Rate Mortgage.
• Discounted Rate Mortgage.
• Capped Rate Mortgage.
• Cash Back Mortgage.
• Flexible Mortgage.

What may also interest you are the types of Insurances available:

• Buildings Insurance.
• Contents Insurance.
• Life Insurance.
• Critical Illness.

APR

These are various ways of expressing the interest rate applied to a
mortgage. For example, some lenders quote the percentage rate per
annum while others quote the percentage rate per month. The
amount of interest charged is also affected if the rate is applied to the
account balance on a daily, monthly or annual basis. Other things
being equal, it is more favourable to a borrower if interest is applied
to the daily balance.

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These variables mean that it may be difficult to compare one
mortgage offer with another. However, the Annual Percentage Rate of
Charge (APR), takes into account these variations and also reflects
additional costs such as valuation fees, arrangement fees and legal
cost charged by lenders. Therefore, for the purpose of comparison,
the APR gives a fairly reliable indication of which mortgage is likely to
be the most competitive

VARIABLE RATE MORTGAGE

The interest rate applied to the loan generally rises or falls in line with
other interest rates in the economy. The loan documentation specifies
the circumstances when the rate will change e.g. in line with a
lender's standard variable rate. Rate changes result in a higher or
lower amount of interest being charged on a loan which will affect the
payments to be made.

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TRACKER MORTGAGE

This is a specific type of variable rate mortgage. Interest on the loan
tracks a bank base rate which means that the interest rate is
variable. At the time such a loan is arranged you are told what
margin is added to the base rate. For example a margin of 2% with a
base rate of 6% per annum means you will initially be charged
interest at the rate of 8% per annum. If the base rate subsequently
changes to say 7% per annum, the margin remains at 2% but interest
will be charged at 9% per annum.

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FIXED RATE MORTGAGES

The rate at which interest is charged on the loan is fixed throughout a
set period specified in the loan agreement. The monthly payments will
remain unchanged during the set period. Thereafter the interest rate
and payments may vary as provided for in the agreement.

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DISCOUNTED RATE MORTGAGE

The interest rate applied to the loan is discounted by a set amount (a
"margin") below the lender's standard rate. If the standard rate
changes the discounted rate will also change but will remain below the
standard rate by the same margin. The discounted rate normally
applies for a set period after which the lender's standard variable rate
will usually apply.

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CAPPED RATE MORTGAGE

The interest rate applied to the loan will not go above a pre
determined level even if other interest rates increase. If rates fall the
benefit is passes on to the borrower. The capped rate is normally for
a set period after which the lender's standard variable rate will
usually apply.

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CASH BACK MORTGAGE

As an incentive to select a particular loan, some lenders offer to give
the borrower an additional sum of money at the start of the loan. This
is usually a percentage of the loan amount e.g. 3% cashback on a
£10,000 loan gives a cashback payment of £300 to the customer.
When cashback of offered it is usually with loans charged at the
lender's standard variable rate.

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FLEXIBLE MORTGAGE

This type of mortgage allows a degree of flexibility in the frequency
and amount of repayments. The benefits vary from one lender to
another but in general the borrower may have the choice to miss a
payment one month or pay extra if personal circumstances allow.
Paying extra reduces the amount of interest charged while
underpaying results in interest being charged on a higher account
balance. The interest rate charged on this type of mortgage may be
higher than for more conventional mortgages.

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TYPES OF INSURANCE

BUILDINGS INSURANCE

Subject to the terms of the policy, this normally provides cover for
damage or losses to buildings caused by fire, flood, explosion,
subsidence, vandalism, theft, etc. Lenders require that the mortgaged
property must be insured for its full rebuilding cost. The homeowner
is responsible for the cost.

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CONTENTS INSURANCE

This provides cover for damage or losses to home contents caused by
the same events described under building insurance. This protection
is solely for the benefit of the homeowner who is also responsible for
the cost.

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LIFE INSURANCE

This cover gives protection to families against financial hardship in the
event of death of the insured person. The amount of the benefit
payable is specified in the insurance policy.

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CRITICAL ILLNESS

This cover pays the benefit upon diagnosis of a serious illness such as
a heart attack or cancer. The benefit is paid as a capital sum to
enable repayment of your mortgage immediately or if adaptation of
your home is needed.