There have been many new types of mortgage appear on the market over the last few years. Most lenders offer some variation and each have their own merits. Please note that the following is a generalisation and every aspect does not apply to all similar mortgage deals.
Bank of England (BoE) Base Rate:
The mortgage interest rate often follows (or 'tracks', hence the term 'Tracker Mortgage') the BoE Base Rate. If this rate alters, the monthly mortgage payment will automatically alter, usually from the following month. It is not necessary to wait for the lender to reduce their variable rate (if indeed they do) if the Bank Base Rate (BBR) decreases.
Daily Interest:
Lenders have traditionally calculated the interest on an annual basis. Should you overpay your mortgage, whether by a few pounds each month or by lump sums on a one-off or regular basis, the overpayment would not be taken into consideration until the end of the financial year. When interest is calculated daily, any overpayments reduce the balance from the following day and therefore interest payments are reduced accordingly. The effect can be be to pay off your mortgage years earlier than planned, even by overpaying by a relatively small amount.
Flexibles:
Most flexible mortgages use the two systems as detailed above. Flexible mortgages are usually offered as an alternative to fixed, discounted etc. Usually the only disadvantage is that payments will increase if the BBR rises. Otherwise there are not normally any Early Repayment Charges if you overpay, repay in total or move house or remortgage.
The better flexible mortgages allow you to not only overpay, but also underpay and take payment holidays. Some allow you to 'draw down' i.e.: take back money from the mortgage account that you have previously overpaid! A few allow you to link or merge saving & current accounts so any credit balance is offset against the mortgage and thereby reduces the monthly payment or the term. mortgage2move understands each type of mortgage. After discussions with you, we could advise which of the many types of mortgage would be most appropriate for your current needs and circumstances and then search out and recommend the most suitable deal, from every lender in the U.K. that are available to mortgage2move.
