Mortgages

A standard variable rate (SVR) mortgage is a plain vanilla type of mortgage. If you have one you could almost certainly get a better deal by re-mortgaging elsewhere.

The rate of interest is charged at the lender's SVR, typically a percent or two above the Bank of England Base Rate (although currently higher due to the 'credit crunch'). While a SVR tends to follow the base rate, it may not do so exactly - some lenders drag their heels and may not pass on the full extent of a base rate cut.

A variable rate that follows the Bank of England Base Rate exactly. The rate will be be a certain amount above or below the base rate, e.g. base rate + 1%. The mortgage may have a 'collar' below which the rate cannot fall.

An interesting option if you have a few thousand pounds or more of savings. The savings can be offset against your mortgage when calculating your monthly interest payments, equivalent to earning tax-free interest on your savings. To find out more click here.

The interest rate you pay is fixed for a period of time, usually up to five years. This protects you from rising rates, but you could lose out if variable rates fall below the rate you've fixed at.

Provides a discount on the lender's SVR or a tracker rate, usually for up to three years. These can be a good deal provided you're free to switch to another lender when the discount ends.

The lender gives you a 'cash back' of several percent of the mortgage value, e.g. a 5% cashback on a £200,000 mortgage is £10,000. However, it's not too good to be true, the rates of interest are usually uncompetitive so the lender claws back this cash (and maybe more) over the life of the mortgage, or via an 'early exit' penalty if necessary.

Got spare cash and want to payoff your repayment mortgage faster? Most lenders allow you to pay more than your usual payment, reducing the term of your mortgage and saving you money. Find out how much you could save using our Mortgage Overpayment Calculator.

A cap is a maximum interest rate above which your mortgage cannot go. This gives you some protection against soaring rates.

A collar is a minimum interest rate below which your mortgage cannot go. This could mean you losing out if rates plunge.

How often does the lender charge interest? Daily is best because it means the lender recalculates the money you owe every time you make a payment, reducing your overall mortgage cost.

Most mortgages are portable, so this isn't a problem. If you need to borrow more you could either take out an additional mortgage or re-mortgage, i.e. swap your existing mortgage for a new one.

These upfront fees are increasingly common as lenders use them to manipulate their interest rates, helping them look competitive in 'best buy' tables. A high initial fee means they can cut the headline interest rate without affecting their profit.

Fees can range from £100 to over £1,000. Don't be put off by initial fees, especially if you're taking out a large mortgage, but check the impact of the fee by looking at the APR, not the headline interest rate. Also check whether they're refundable if the property purchase falls through.

Lenders want to make sure the property is actually worth what you're paying for it, so they stand a chance of recouping their money if they have to repossess. They do this by instructing a surveyor to carry out a valuation. You foot the bill, which is normally around £250 or more.

Mortgage indemnity guarantees (or 'higher lending charges') pay for insurance designed to protect the lender if they repossess your home and are left out of pocket when the property is then sold. Although (thankfully) less common than they used to be, some lenders might still apply mortgage indemnity guarantees to mortgages that are 90% or more of the property value (i.e. a LTV of 90% and above).

The fee is usually calculated by deducting 75% from the LTV, multiplying this by the property value and multiplying again by a 'premium' percentage. Typical premium percentages are 6% for LTVs between 90% - 95% and 8% thereafter.

If you payoff your mortgage early, perhaps due to a windfall or more likely to re-mortgage at a better rate elsewhere, you could face a redemption charge.

These usually apply to mortgages with an initial 'special offer' period, such as a discounted or fixed rate mortgage. If you redeem during the offer period the lender applies the penalty charge, which could be hundreds or even thousands of pounds. Beware 'extended' redemption penalties, which apply beyond the offer period. These could effectively lock you in to an uncompetitive rate for several years after the offer has finished, costing you a small fortune and offsetting the benefit of the deal in the first place.

Always check how much and for how long any redemption penalty might apply to a mortgage before applying.

Many providers charge a redemption or exit fee when you repay (or switch) your mortgage. This is totally separate to redemption penalties and often described as an administration fee. However, it's a subject of much controversy as some lenders charge several hundred pounds, which appears excessive. Worse still, many have hiked their exit fees significantly over the last few years, without customers' agreement. The Financial Services Authority (FSA) has said this is not allowed, opening the floodgates for affected customers to claim refunds from lenders.

If you've switched or paid off a mortgage during the last 10 years you may be entitled to a refund.

Life cover makes sense if your family or other financial dependants would struggle to pay the mortgage should you die. Term assurance is almost always the most sensible and cost effective option. However, premiums vary widely between providers and shopping around for the best deal could save you hundreds of pounds over the term of the policy. Find out more about term assurance here.

If you take out an interest only mortgage you might want to start saving into an investment in the hope it'll grow sufficiently to repay the mortgage at the end of the term. Many advisers and salesmen used to push endowments because it made them loads of commission, however a combination of high charges and poor performance led to many endowments being insufficient to repay their owner's mortgage Bad publicity has thankfully more or less stamped out this practice, but if you're offered an endowment then run!

An ISA is likely to be a more sensible and flexible option. However, the quality (and performance) of underlying 'equity' ISA investments varies widely between providers. Even the so-called 'best' investment providers can perform poorly, although investments run by the banks tend to fare worse than many. If you know what you're doing them buy through a discount broker to get some commission back, else seek advice from a good independent financial adviser.

Mortgage payment protection insurance (MPPI) policies, often called accident, sickness & unemployment (ASU) insurance aim to meet your mortgage payments if you're unable to work for these reasons. They can be expensive (several pounds each month per £100 of monthly mortgage payment you wish to protect), you might not receive help until 30-60 days after a successful claim and payouts only usually last for a year, so don't be seduced into thinking this is an insurance you can't do without. If you really want cover then shop around as you could find a policy that costs less than half that offered by your lender.