Just How Do Mortgages Work?

by Mark Johnston

According to new data which has recently been published looking at new mortgages taken out, with specific regards to britain, the most popular mortgage taken was the fixed rate mortgage. The data showed the fixed rate deal was between fifty and seventy five percent of mortgages taken, leaving the tracker deal or variable rate deals to account for most of the rest of home loans according to the Council of  Mortgage Lenders (CML).

Everyone likes a good deal! Buyers go to the sales after christmas to bag a bargin,so why not when borrowers are requiring a mortgage, on this they also need value for their hard earned money and security. Lenders who offer a primary special rate for variable or fixed rate deals over several time periods two year, five year and six year give borrowers choices to have the deal which best suit’s them.

After the honeymoon period of the mortgage has ended, this can have helped you in several ways, even though you do not realise it you now understand how to budget, find a deal to suit your own circumstances, ensure there is money to pay your mortgage and pay it on time as even now if you falter on these skills you may lose big time, you may lose your home! After this time period has ended and with the skills you have gained you now need to pay back the mortgage. This is when the mortgage  is automaticly  changed to the lenders standard variable rate which is usually two percent above the Bank of England base rate.

 However things have changed recently in the banking world , due to the banking crisis, the Bank of  England had to lower its base rate down to 0.5 percent this in turn had an impact on lenders rates. What has now emerged, which is predominatly been caused by the banking crisis is that some lenders standard variable rate has increased from the 0.2 percent above the Bank of England base rate to above five or six percent.

Those mortgage deals that allow borrowers to leave after the special rate peroid of two, three or even five years at no cost or minimal cost has allowed the borrower to try and find another deal which maybe much the same deal that has just finished or look for a different deal  which will suit their life style as it has changed over maybe five years .Although some borrowers maybe better staying with their mortgage lender if the lender has cut the standard variable rate considerably.

At the present moment the Bank of England base rate is low at 0.5 percent, the lenders standard variable rate is determined by the base rate so thus the lenders have a lower rate also, but as you know nothing stays the same and nobody knows when the base rate will go up so many borrowers are taking advantage of  this and are looking at variouse mortgage lenders deals to find out the best one for them and then securing the deal for 2, 3 or 5 years.



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