UK Mortgages: Stepped Mortgages

STEPPED MORTGAGES

Stepped rate mortgages are attractive to some clients because the interest rate is varied in steps over the term of the mortgage. A client can have a step up mortgage or a step down mortgage. The step up mortgage interest rate begins at a low discount and is increased over the life of the term. This has an advantage of smaller payments at the beginning of the mortgage and then increasing over time. A step down mortgage interest rate begins higher and then declines in steps over the term of the mortgage. Both are available if you have adverse or poor credit history

fixed step mortgage can be either a step up or a step down mortgage with clearly specified interest rates over the term of the mortgage. The interest rate is known and the monthly payments are also known for each payment over the term of the mortgage. This has an advantage for those clients who want to know what their payments are going to be over the life of the mortgage who still want to have the flexibility of having lower payments either at the beginning or at the end of a mortgage.

Step tracker mortgages are another type of stepped mortgages. This mortgage may have its interest rate tied to the Bank of England bank rate. For example, the initial rate might be 1% above the Bank of England rate for the first period, then 1.5% for the 2nd period and so on. Interest rates will vary based on the Bank of England rate if it begins to fluctuate very much.

Stepped mortgages with cash back can be very interesting and attractive to first time home owners. The mortgage company will offer some percentage of interest as a cash back to help new owners with moving furniture or legal expenses. Coupled with a discount at the beginning, this can be attractive for the new homebuyer