What Types of Mortgages Are There?
What types of mortgages are there? Homebuyers and home-movers can choose from fixed mortgages and different types of variable rate mortgages. It’s important to understand how the different types of mortgages work in order to get the right home loan for your circumstances.
To get the best idea of your mortgage options and what mortgage is right for you it’s always worth speaking to a mortgage adviser. Our preferred mortgage adviser offers a free mortgage in principle that you could get instantly.
They also are the UK’s first online mortgage broker and have access to over 12,000 deals from 90 lenders.
Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.
What types of mortgages are there: fixed rate mortgage
With a fixed rate mortgage, the interest rate and therefore your monthly payments remain the same for a set period of time. Fixed rates tend to be for two, three, five or 10 years.
A fixed rate mortgage will help you budget as you know exactly how much your mortgage will cost for the duration of the fix.
On the downside, you will miss out on savings if interest rates fall. You’ll also have to pay early repayment charges if you want to exit the deal early. You will also need to be aware of what happens when your fixed rate mortgage ends.
Your home may be repossessed if you do not keep up repayments on your mortgage.
What types of mortgages are there: variable rate mortgage
With a variable rate mortgage, the interest rate you pay can change if the Bank of England changes the base rate. The lender can change the interest rate despite the base rate remaining the same, on some deals.
This means your mortgage payments could change from month to month. The advantage of variable rate mortgages is that you will benefit from any fall in interest rate. These deals often come without early repayment charges. but you will pay more on your mortgage if interest rates rise.
There are several types of variable rate mortgage:
Standard variable rate (SVR)
The SVR is the rate of interest that’s usually charged once a fixed rate or tracker period ends. The SVR is set by the lender and can change at any time. Some lenders offer mortgages at their SVR.
Discount mortgages
Discount mortgages offer a pay rate pegged to the lender’s SVR. For example, if the SVR is 5% and the discount is 2%, you’ll pay 3%. Discounts are usually for a set period of time (e.g. two years) before the pay rate reverts to the SVR.
Tracker mortgages
Tracker mortgages have a pay rate pegged to the Bank of England base rate. For example, ‘base rate plus 1%’. So, if the base rate is 1%, you’ll pay 2%; if the base rate goes up to 1.25%, you’ll pay 2.25%.
To get the best idea of your mortgage options and what mortgage is right for you it’s always worth speaking to a mortgage adviser. Our preferred mortgage adviser offers a free mortgage in principle that you could get instantly.
Your home may be repossessed if you do not keep up repayments on your mortgage.
What is an offset mortgage?
An offset mortgage allows you to link your mortgage to your savings. The savings balance is used to reduce the amount of interest charged on the mortgage. For example, if you had a £200,000 mortgage and £20,000 in savings, you’d pay interest on £180,000.
Some offset mortgages also allow you to link your current account to your mortgage, with interest calculated daily.
What is a repayment mortgage?
When you take out a mortgage, you’ll need to decide how to repay it. The most common option is a repayment mortgage.
The lender will calculate your repayments, so you pay off some interest and some of the capital borrowed each month. At the end of the mortgage term, you’ll have paid off everything you owe and own your home outright.
To get the best idea of your mortgage options and what mortgage is right for you it’s always worth speaking to a mortgage adviser. Our preferred mortgage adviser offers a free mortgage in principle that you could get instantly.
Your home may be repossessed if you do not keep up repayments on your mortgage.
What is an interest-only mortgage?
With an interest-only mortgage, your repayments only pay the interest on the loan. Although your monthly payments will be cheaper, at the end of the term, you’ll still owe the money you originally borrowed.
Interest-only mortgages are normally taken out by landlords, rather than owner-occupiers.
What is a buy-to-let mortgage?
You’ll need a buy-to-let (BTL) mortgage if you buy a property with the intention of letting it out.
Whereas on mainstream mortgages affordability is assessed by looking at the borrower’s income and outgoings. BTL affordability is based on predicted rental income.
What types of mortgages are there?
Other types of mortgages include:
- First-time buyer mortgages
- Shared equity mortgages
- Shared ownership mortgages
- Help to Buy mortgages
- Let-to-buy mortgages
- Joint mortgages, for example if you’re buying a house with a friend, partner or family
- 95% mortgages
- Lifetime mortgages
- Green mortgages
- Retirement interest only mortgages
Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.
Last Updated: October 30th, 2024
