Fixed Mortgages
What are discounted, capped and fixed-rate Mortgages?
These are all various ways of how the interest is charged and payments calculated on a mortgage.
A discounted mortgage is variable rate mortgage (can move up or down) where the lender provides a discount to its Standard Variable Rate (SVR see Q2) for a period. So an SVR of 5% with a discount of 1% for three years means the borrower pays 4% initially. The lender can increase or decrease the SVR at their discretion and is not necessarily linked to the changes in the base rate. So you may end up paying more or less than 4% in that 3 year period. Most lenders do tend to move in line with any changes to the Bank of England rate.
A capped mortgage is another variable rate but there is a maximum limit that the rate can increase to. There is also a possibility in some cases that the mortgage rate can reduce. The underlying rate can be either base rate linked or linked to the lender’s SVR as above.
A fixed rate is at it suggests fixed at a certain level for a period of time. It is generally fixed for 2,3 and 5 year terms although other longer terms are occasionally available. The rate will therefore not change even if the lender moves its own SVR up or down.
Disclaimer:
The answers above are for guidance only and should not be acted upon without you receiving professional mortgage advice relevant to your circumstances. To find an independent mortgage adviser please go to http://www.unbiased.co.uk