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What Types of Mortgages Are There?

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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 offer fee-free advice in 24 hours and a decision on your mortgage in 5 days from submission of your mortgage application. Or they will pay you £100!

Mortgage Quotes

Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage. Terms and conditions apply to their mortgage decision promise.

What is a 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. You’ll also be protected from any rise in interest rates.

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.

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Your home may be repossessed if you do not keep up repayments on your mortgage. Terms and conditions apply to their mortgage decision promise.

What is a 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 rates and 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.

Mortgage in Principle

Next to this, they also offers fee-free advice in 24 hours and a decision on your mortgage in 5 days from submission of your mortgage application. Or they will pay you £100!

Your home may be repossessed if you do not keep up repayments on your mortgage. Terms and conditions apply to their mortgage decision promise.

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.

They also offer fee-free advice in 24 hours and a decision on your mortgage in 5 days from submission of your mortgage application. Or they will pay you £100!

Mortgage Quotes

Your home may be repossessed if you do not keep up repayments on your mortgage. Terms and conditions apply to their mortgage decision promise.

What is an interest-only mortgage?

With an interest-only mortgage, your repayments only pay the interest on the loan. So, your monthly payments will be cheaper. However, 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.

Are there any other types of mortgages?

Other types of mortgages include:

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Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage. Terms and conditions apply to their mortgage decision promise.

Last Updated: June 9th, 2022