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What is a stepped rate mortgage

what is a stepped rate mortgage

It appears that stepped mortgages are starting to make a comeback, with lenders who are currently offering them being joined by banking giant Barclays.

Stepped mortgages are which offer you a 'tiered' interest rate, which will increase during the year. For instance, you might pay a rate of 2 per cent during your first year, and this will then increase to 3 per cent for the next year, then 4 per cent, and so on. They are primarily targeted at, but not restricted to.

Barclays has begun offering two fixed-rate stepped mortgages, at 90 per cent (LTV) for a period of either three years or five years, and offer them both without charging arrangement fees.

Their three-year deal is set at 3.49 per cent for the first year, before increasing to 4.19 per cent for the remaining two years.

Their five-year deal is set at 3.59 per cent for the first year, before increasing to 4.19 per cent for the remaining four years.

A stepped mortgage provides borrowers with the possibility to pay low original payments, which can be incredibly useful when you have other expenses such as furniture.

However, it may be a difficult shock to adjust to when the rate increases, especially if your financial situation has worsened during the year, and you may underestimate the total costs if you pay lower rates to begin with. There are also variable-rate stepped mortgages, which allow lenders to change the rate during the year, not just increasing it annually, which could cause problems for borrowers.

Therefore, although this development may be beneficial to you, ensure you check thoroughly on whether it is the best option to pursue.

Category: Credit

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