SarahBeenySpringIssue2017 - 46
▲ BUYING AND SELLING
WHAT IS ARAC?
This is an annual percentage rate of charge, and was introduced last year by
the Mortgage Credit Directive. It shows how much you will pay for the entire
mortgage, totalling up your loan amount plus the interest and any additional
fees. This is also sometimes labelled 'overall cost for comparison'. It takes into
account any initial discounted fees, and the standard variable rate (SVR) that
the loan will revert to after that promotional period. So you get an accurate
ﬁgure of how much you'll pay in entirety, if you keep the mortgage running for
the full term (usually 25 years).
WHAT IT MEANS
This is a special-deal rate mortgage
at a speciﬁc amount for a set time.
It is usually a certain percentage
more than the base interest rate.
There are some great ﬁxed deals
out there, around 1.5% for two
years, and 3.5% for ﬁve years.
Interest rates are still low, so it's
a good time to ﬁx. It helps you to
budget, as you know exactly how
much is going out each month.
It also protects you if the Bank
of England raises interest rates,
which will happen at some point.
The rates tend to be a bit higher
than variable mortgages - and
you won't beneﬁt if interest rates
fall. There can also be hefty fees
to take into account. Your rate will
revert to the standard variable rate
after the ﬁxed term ends (which can
be a jump of up to 5%), so you'll
see a hike in your repayments
- be prepared to switch lenders.
You get to pay a lower percentage
rate on the lender's SVR for a set
period - which is usually between
one and three years.
You get to take advantage of
lenders' special offers, which can
be huge - lenders have been
known to offer discounted rates
of less than 1%. This means you
can save money in the short
term, when you may need to buy
furniture or pay for repairs. If the
lender cuts their SVR, you'll also
beneﬁt from a reduction.
You'll usually get these deals only
as a new customer or ﬁrst-time buyer.
Look at the APR (annual percentage
rate) you'll be paying, not just the
discount - and watch out for large
arrangement fees, which can mean
you actually spend more. Use a 'true
cost mortgage calcuator' to check.
There can also be hefty exit fees
if you want to get out early.
This stays proportional to the
Bank of England's base rate - and
stays at a certain percentage
above that. They usually run
from two to ﬁve years, but some
lenders offer lifetime trackers.
Your payments will go down
if the interest rate does and,
currently, you get to take
advantage of the historically low
Bank of England base rate.
Budgeting can be difﬁcult. Should
interest rates rise, so will your
repayments. Read the small print
- some lenders can increase
trackers even when the Bank
of England rate hasn't changed.
This is the standard mortgage
without any special deal - and is the
rate that all mortgages default to
after an initial ﬁx or discount.
You won't be tied in - so if you win
the lottery or come into money,
you can pay off your mortgage free
of fees. You can also overpay or
quit without entailing any penalty.
The rate may go up or down at
any time, which can be risky and
possibly stressful if budgeting
isn't your strong point.
This is a variable-rate mortgage,
but there is a top 'cap', or limit,
which means even if interest rates
surge, there is a maximum rate you
will be charged and no more.
You can take advantage of any
interest-rate drops, while at the
same time protecting yourself
against any huge hikes.
The percentage rate is often
higher than ﬁxed or discounted
rates. The amount you pay each
month may vary, which can make
budgeting difﬁcult. Be aware the
lender can raise the interest rate
up to the cap limit at any time.
You pay your monthly mortgage
repayments as normal but, if you
have savings or a surplus in a bank
account with that lender, the interest
you would have earned on these is
treated as a mortgage overpayment;
so you reduce the balance faster.
If you've got money in the bank,
you can clear your mortgage
faster - potentially saving yourself
thousands of pounds.
Only suitable for those with lots of
savings and no overdraft - and who
can follow their varying ﬁnancial
position from month to month.
046 | MAY 2017
WORDS: KIA HANSEN, IMAGES: SHUTTERSTOCK