Capped Mortgages

The major disadvantage of the fixed-rate mortgage is that whilst it protects you against rising interest rates, it also stops you taking advantage of a fall in interest rates.

This is where the capped mortgage comes in. As the name suggests, this type of mortgage provides a roof on the level to which the interest rate on your mortgage can rise. But because your mortgage is capped rather than fixed, your repayments can slide up and down below the level of the cap, depending on what interest rates are doing generally.

In principle, you are combining the security of a fixed-rate mortgage with the speculative advantages of a variable-rate mortgage to get the best of both worlds. So, for example, with a capped rate of 6 per cent over two years, you have the assurance that if the lender's standard mortgage rate rises to 8 per cent, the rate of interest you pay will stay at 6 per cent. (Nor would you later have to repay the difference between the two rates.) But should the lender's standard rate fall to 4 per cent during that time the rate of interest you pay will fall with it.

Some lenders have a collar on their capped rates which, should rates fall below a certain point, your rate will not fall below that rate.

Like a fixed-rate or discount, the cap and/or collar is only in place for a set period - generally between one and five years. After the capped period is over, your mortgage is likely to revert to the standard variable interest rate.

Other considerations when taking out a capped mortgage are the cost of arrangement fees or if the capped rate is portable and will still apply should you move home within the period of the capped-rate offer.

This type of mortgage is not as common as it was, overtaken by the tracker mortgage in terms of popularity and features. However it does make a come back every so often so is worth knowing about.

 

Cashbacks

Choosing a mortgage linked with a cashback gives you a cash lump sum, tax-free, on completion of your mortgage. They come in discounts, trackers or fixed rates so you need to choose which type of mortgage you would prefer and then the cashback is an added bonus.

By giving borrowers a fixed lump sum or a percentage of the loan as a lump sum, lenders offered an attractive incentive to take out one of their mortgages. To start with you must decide on the type of cashback you want - one based as a percentage of the sum you are borrowing, or simply a cash lump sum. If you decide on a percentage cashback, the amount of money you get as a cashback will be determined by how much you are borrowing. This in turn could be dictated by the size of the deposit you are able to put down.

In the past, cashbacks as a percentage of the loan tended to be higher amounts than a fixed sum. For instance at one point cashbacks of 6-7 per cent were reasonably common whilst fixed sum cashbacks tended to be in the region of £200-300.

There are currently very few cashbacks currently available so I would not look for this type of mortgage as priority.

 

Credit Impaired

There are many reasons why you may have a poor credit history but it can affect your chances of getting a mortgage.

Disputes over bills, missing credit card payments, and countless other minor things can result in major problems for you to even remortgage. In fact lenders have become so cautious in light of the recent problems that you may find you can't get a mortgage at all.

There were lenders who were prepared to help you - sub-prime lenders - but these have been hit most by the credit crunch and have mostly stopped lending. Those that are lending have increased their rates so they are hugely more expensive than their high street rivals. The only problem is that those high street rivals will not touch you with a barge pole.

However, if you do need to take out a new mortgage or are coming to the end of a special offer and want to remortgage you do have some options. Talk to your current lender who will know your payment history and may be able to help. You should also talk to a mortgage adviser who will be able to consider your situation and advise you on your best options.

 

Discounts

There are many reasons why you may have a poor credit history but it can affect your chances of getting a mortgage.

With this type of interest rate, the lender drops a few percentage points off its variable lending rate. Some lenders offer discounts only to first-time buyers, but others offer them to all their customers.

Some discounts tend to vary depending on the size of deposit you put down so the less you borrow the better the interest rate. Discounted rates are only on offer for a certain period of the mortgage term, say six months, a year or five years, and then the interest rate you pay reverts back to the lender's variable rate.

Beware, if you are choosing your lender purely because of the amount of discount you will receive - you don't get anything for nothing. The mortgage you are considering is very likely to have a number of clauses attached to it, such as arrangement fees and redemption penalties. You may also find that the lender's standard variable rate you end up paying may not be very competitive.