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Interest Rates

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

Types of mortgage available
With a vast range of mortgage products available, it might seem that you can almost pick and choose the rate you want to pay. One of the ways in which a mortgage adviser can help, is to sort through the availible products and find the right one for you. While the interest rate is part of that equation, it is not the whole story. The overall structure of the contract is also important. Broadly speaking all good offers have to be paid for in some shape or form, and the question is: "Do the advantages outweigh the disadvantages?"

Floating/ standard/ variable market rate - These allow you to borrow at the lender's normal rate of interest. This is the simplest mortgage option and there are usually no early repayment charges if you want to move. The rate will vary as the market changes.

A 'tracker' - Changes in line with a specified rate and follows a named interest rate in a fixed way, e.g. bank base rate +1 per cent. There may be early repayment charges on moving, depending on the deal.

Loyalty rate mortgages - Existing customers who meet the lender's criteria may be offered a discount to the standard rate.

Fixed interest rate - The rate is fixed at an agreed rate and for an agreed period of time. Your payments are not affected by either increases or decreases in the market interest rate during the agreed period.

When the fixed period ends you may be expected to stay with the lender and pay the full standard variable Rate for a further one to three years. If the lender has a reputation for being expensive with regard to its standard rates this would be something to take into account.

Early repayment charges can also be very high should you wish to break the agreement, and this is another area to assess. If you fix for five years and rates fall, you might want to switch to a lower rate. You are likely to find doing so very expensive because of early repayment charges.

Because no one knows what future interest rates will be, fixed interest rates are best used when either they represent an attractive offer and way of saving money in the short term, and where the risk of losing out through downwards rate changes is one worth taking. Fixed interest rates may also be worth considering if you are concerned that rates may move upwards and that this would cause you serious problems with your budgeting.

Discounted interest rate – You get a discount on the standard variable rate for a given period – typically two to five years. If you decide to break the agreement, expect to face an early repayment charge during the discount period and possibly beyond it. Be sure you understand the charges before signing.

Capped rates - These are mortgages that place an upper limit on your mortgage rate while still allowing you to benefit from reductions in interest rates.

Complex offers - Some schemes cen be quite complex, and what may be given on one hand (a low interest rate) may be taken back with the other (an application fee).

Offset mortgages - These are mortgages where the lender offsets any interest on your deposits against the interest due on your mortgage.

These have proven popular but they are not recommended for everyone. However, if you have significant funds on deposit - which should not be invested elsewhere for the longer term - and the institution offers both a good deposit interest rate and a competitive interest rate, then the package can be attractive. Your mortgage adviser can assess this for you.

Special cases - Lenders are very inventive in what is an increasingly competitive market. The attractiveness of such offers would depend upon your situation.

All such offers need to be very carefully evaluated given your own particular circumstances.

Selecting the right type of interest contract is a complex area, and the role of a mortgage adviser is to help you find the mortgage that suits your needs.