Know your fixed rates from your trackers!

The knack of picking the right mortgage is weighing up all of the pros and cons, choosing something that you feel comfortable with, and most importantly choosing one you can afford. Mortgage and property website obligo.co.uk argues that consumers need quality information and advice in equal measures when deciding what type of mortgage is the most suitable.

Other than kids, mortgages are the biggest financial commitment you are likely to make, so it's important to get all the information you need on mortgages and remortgages before you start. It may surprise you to know that most mortgages tend to work out roughly the same over time. Mortgages with a lower initial rate tend to have higher fees, and those with higher initial rates tend to have lower fees.

The knack of picking the right mortgage is weighing up all of the pros and cons, and choosing something that you feel comfortable with, and can afford. This guide will help you choose the right mortgage by helping you understand the different ways in which mortgages are packaged up by mortgage lenders to look attractive and affordable.

However there are more to mortgages than just the rates and charges, you will need to understand early repayment charges, legal fees, broker fees, lender fees, for example to work out what its going to cost you and to work out what the best deal is.

A good place to start is knowing features and benefits of the bewildering array of mortgages that are out there. By empowering consumers with quality information obligo.co.uk believe consumers can make more informed and responsible mortgage choices.

Variable rate mortgages

Variable rate mortgages mean you will pay the lender's standard variable rate of interest (SVR). This is calculated by taking into account market conditions, which for example may mean that if the Bank of England puts the interest rate up - it's likely your SVR will also go up too and vice versa if they go down.

You may save money on your mortgage if interest rates drop because your payments will follow suit although bear in mind, if rates go up so will your repayments. You must take this into account when calculating your budget.

Discount rate mortgages

Discount rate mortgages are the same as variable rate mortgages except that for a period of time there will be a discount applied to the standard variable rate (SVR). For example the mortgage will be at the lenders standard variable rate (SVR) but will be discounted for 2 years by 2%.

Tracker mortgages

A tracker is simply a mortgage that tracks the Bank of England base rate. The rate charged on a tracker mortgage tracks the movements in the Bank of England base rate up and down; hence your mortgage repayments may go up or down.

Fixed rate mortgages

Fixed rate mortgages are ideal if you want to know how much they are paying each month. The main feature of a fixed rate mortgage is that if interest rates go up you wont have any increases in your monthly repayments. At the end of the fixed rate term your mortgage will revert to the lenders normal or standard variable rate.

Capped rate mortgage

Capped rate mortgages are a blend of a fixed rate and a discount rate mortgage. A maximum interest rate (the cap) is set period of time but if the SVR drops below that rate you'll pay that lower amount. Many capped mortgages will have a ‘collar’ as well as a 'cap' between which the interest rate payable may move. The ceiling being the maximum rate, and the collar being the minimum.

Cashback mortgage

A cashback mortgage will give you a cash payment once you've stared the mortgage. This can be either a set amount of money or a percentage of the amount you have borrowed. Normally if you repay the cash back mortgage in full within a given time (three to five years) then the cashback must be repaid as part of the early repayment penalties applied.

Flexible mortgage

Flexible mortgages allow you to overpay and underpay or take payment breaks. If some months you feel you'd like to pay a little extra, you can. Most flexible mortgages charge interest on a daily or monthly basis meaning if you can pay more than the set monthly repayment, on a regular basis, reducing the term of your mortgage is possible. Most flexible mortgages do have terms and conditions attached as to the extent of the flexible features.

Current account mortgages

Current account mortgages combine your mortgage with your current account. In effect what you have a very large overdraft! The main benefit is that your interest is calculated on the sum you borrowed, less the funds you have in your current account.

So if you borrow £150,000 and you have £10,000 in your account you'll only be charged interest on £140,000. This means that in most cases the tax you would have paid on your savings is reduced to 0% as it is not being treated as savings, and that you only pay interest on the net amount you owe. These mortgages are only suitable if you have savings or are paid in lump sums that may reduce the net balance for prolonged periods.

Offset mortgages

As with current account mortgages, offset mortgages take into account funds you have in savings or current accounts when the interest on your mortgage is calculated. This could be an advantage as with the current account mortgage, but the same suitability guidelines apply.

About obligo

Obligo is a new mortgage business based around a revolutionary concept that will provide consumers with tools and information about UK mortgages, whilst retaining a human aspect to case underwriting and application management.

Obligo intends to change the way UK consumers approach mortgages. Obligo is a unique collaboration of information and resources from both the UK mortgage and property markets.

Features that have recently only been available through websites and entities are collectively presented to the consumer in a simple, easy and effective manner. 

Real-time house price information, automated property valuations (AVM), consumer guides,market analysis and expert market commentary is available together with industry leading mortgage calculators and application tracking systems.

Obligo Ltd is a privately held company with a highly experienced and proven management team with proven track records in start-up aquisitions and sales in the mortgage and other sectors.

The founders have set a course in the changing world of financial services to deliver transparency and efficiency to the UK mortgage market .

for more information email [email protected]

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