4. COMPARING PRODUCTS AND PROVIDERS
4.1 Different Mortgage Types
- Variable Rate - generally no penalty.
- Fixed Rate - will depend on the initial term, the longer the term,
the higher the penalty, perhaps up to six months' interest.
- Deferred Interest - potentially a higher rate (because of the
interest forgone) plus full repayment of the accumulated deferred
interest.
- Any penalty imposed will be a one off payment by the borrower.
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Flexibility of payment term may be a useful short-term safety net
when income is reduced, as it will be appreciated that the term
can be stretched only so far. The option has little if any value
where the repayment vehicle is a pension plan.
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Arrangement Fees need to be clarified before any commitment is
made, as some may be refundable up to a certain stage, others may
not. Additionally, although it may seem attractive to 'lose' the
fee by adding it to the loan, in the long run it could be expensive
because of the interest charged over the loan period.
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Overall Annual Percentage Rate (APR), as defined by the calculation
laid down in the Consumer Credit Act 1974, should be easy to compare
between providers. Calculations should be checked, however, to make
sure they are correct
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