What are APRs on Mortgages

In order to make it easier for people to compare differing rates of interest, the Government introduced the concept of the APR which is an abbreviation for the phrase "Annual Percentage Rate of Charge".

The APR represents the total cost of credit and takes into account all the added costs such as valuation fees, lender's conveyancing charges etc which are not included in the nominal rate of interest. Until April 2000 it was possible for different organisations to calculate APRs in various ways. The government has now standardised the practice of calculation so that the APR reflects the cost of borrowing over the total term of the loan and inclusive of any concessionary rates that may be applicable in the early stages.

Fixed Rate Mortgages

A fixed rate mortgage gives an individual the opportunity to set their rate at a given level for a known period of time. Typical terms available range from 1-5 years, but longer rate options are available. A fixed rate can guarantee an individual peace of mind in times of interest rate volatility but they will not allow you to benefit from falls in interest rates below your given fixed level. A rule of thumb to consider here is that generally speaking the longer you wish to fix your rate for, the higher the rate at which you will fix it.

Capped Rate Mortgages

A variation on the theme of the fixed rate above, is the capped rate. Though not always as commonly available, and dependent on your attitude, they offer what might be termed as either the best of both worlds or a compromise. The cap effectively means there is an upper limit on the interest rate you will pay, and if underlying variable rates rise above it you will be unaffected just as with the fixed rate. However if rates fall, and fall below the level of your cap, you are then able to take advantage of this. The period over which you are able to choose your capped rate also varies, and as with fixed rates the rule of thumb applies, that the longer you wish to enjoy your cap, the higher the rate you will initially pay.

Collared Rate Mortgages

If one thinks of a capped rate as a ceiling to one's mortgage payments, so the collar works as a floor, below which your payments cannot fall. This mechanism may be linked to another element, i.e. a cap or a discount, and will extend for a given period of time.

Variable Rate Mortgages

The variable rate fluctuates in that generally speaking it mirrors the direction of the Bank of England's base rate changes, these could be either up or down. Some individuals are happy to accept these fluctuations in their monthly payments, others prefer the option that some lenders offer, that allows them to alter the amount payable by the individual only once a year; if there have been fluctuations in the lender's variable rate this could mean underpaying or overpaying in any given year, and the difference is then applied the following year. Variable rates differ from lender to lender with, in the main, the Plcs charging slightly higher rates than the Mutual Building Societies.

Discounted Rate Mortgage

Following on from the standard variable rate mortgage, many lenders allow individuals the opportunity to achieve a discount on their standard variable rate. As before the period over which the discount is available will vary, with larger discounts available for shorter periods of time and vice versa. The obvious benefit of this scheme is the ability to achieve savings no matter what the current variable rate is, but there is always the danger that interest rates could rise and the size of your discount become relatively less valuable.

Cashback Mortgages

The options listed above each offer something a little different and can help to cater for the requirements of a varied client base; the cashback mortgage has long proved popular, whereby a lump sum is payable from the lender to the client on or after completion of the mortgage and for the client to do with as they please. The cashback is often linked to a proviso that the client goes on to the lender's standard variable rate.

Remortgages

Remortgaging a home is another possible solution for people with adverse credit. The mortgage lending industry is a minefield so assure that you will get the most effective, professional and independent advice. The days when you had to stick with one lender for life have gone.

"Mix and Match" Combinations

For the very particular or the indecisive, "mix and match" options are sometimes available allowing the individual to combine for example a fixed rate with a cashback, or a capped rate with a discount rate etc. Again the word compromise springs to mind, as the rates offered in unison are unlikely to be as attractive as those offered in isolation.

Flexible Mortgages

Many lenders are now offering flexible mortgages though the range and benefits available can vary greatly. Flexible mortgages usually work on the basis of daily interest calculation, and offer the ability to underpay or overpay and even take payment holidays. The % repayment rate is usually variable, though some fixed and discounted options are appearing. Other facilities include the option to drawdown additional funds subject to criteria and even to link to a current account facility.