Mortgage Types

Question 1

Capped

Answer 1

The lender guarantees that the interest rate will not rise above a given level for a certain period of the loan.

Question 2

Cap and collar

Answer 2

Guarantees the interest rate won’t rise between higher (cap) and lower (collar) amount for a period of time eg 2 years

Question 3

Discount

Answer 3

Interest rate charged for an initial period of the loan is reduced by set % below standard rate charged by lender.

Question 4

Euro

Answer 4

Interest and capital is in Euro’s to take advantage of lower rates. This can result in loss or gains as the currency rate moves relative to Sterling.

Question 5

Equity Linked

Answer 5

Lender takes stake in the purchased property. The lender agrees to receive some or all of the repayment in the form of a share of the increase in value (the appreciation) of the property. The lender loans the borrower a capital sum in return for a share of the future increase in the value of the property. The borrowers retain the right to live in the property until death.

Question 6

Fixed Interest

Answer 6

Interest rate fixed over a period of time. May carry redemption penalties.

Question 7

Flexible

Answer 7

Monthly payments can be varied and lump sum capital repayments can be made. As capital is repaid, it creates a reserve of funds. Borrower can withdraw cash at any time or use reserve to pay future interest payments, if they are experiencing a hard time.

Question 8

Offset

Answer 8

Mortgage account and current account are linked. Interest is charged on the net balance of both accounts. The more money there is in a current account, the lesser the interest.

Question 9

Tracker

Answer 9

A variable rate where the interest rate tracks an index, usually the Bank of England base rate. It is designed to move as the index moves.