There are three
basic types. Namely variable rate, capped rate and fixed rate. With
the variable rate mortgage the interest rate will fluctuate according
to the base rate set by the Bank of England. These could vary dramatically
and have in the past been between 6% to as high as 18%. If there are
indications that interest rates may drop in the future this type of
loan is best suited. Also if one is likely to pay the loan off quickly
this is a good option.
The capped rate,
is basically as is indicated. The interest rate is capped at an interest
rate for an agreed period. Depending on the conditions of the provider
there are variations to this. Normally if interest rates are lower than
the capped rate, one pays that rate, however if the interest rate exceeds
the capped rate one only has to pay the interest at the agreed capped
The fixed rate,
is an agreed set interest rate for the entire period of the loan. The
advantage of the fixed rate, is that enables one to know the exact amount
one will be paying for the loan during its entire duration.
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