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Types of mortgage

4 main types of mortgage

There are various different types of mortgages available and this covers the main types available now

Fixed rate mortgages
At the outset of the mortgage you agree a rate with the lender which is fixed for a set period of time, usually between 2 and 10 years. This means that your repayments stay constant during this period. This has the advantage of being able to budget and may be advantageous if general interest rates rise during the fixed rate period. However, if rates fall, you may find you are paying too much.

Tracker Mortgages
These are variable rate mortgages which are usually linked to the rate set by the Bank of England and track this rate for a set period of time, mostly between 2 and 10 years. If the Bank of England rate rises so will your monthly repayments. Conversely, if the bank rate falls, your repayments will also fall.

Capped rate mortgages
These are variable rate mortgages where the maximum rate you will have to pay is capped. As interest rates go up and down your repayments will change, but you know that whatever the prevailing rate, your interest rate will never exceed the maximum ‘cap’. Similar to fixed rates, such rates are capped for a set period of time.

Offset mortgages
These mortgages are most suitable for people with savings they are not using to purchase the property. The lender allows you to link these savings to your mortgage thereby “off-setting” your mortgage interest charges. EG: If you have a mortgage of £200,000 and savings of £50,000 which you link to the mortgage, you will only pay interest on £150,000. However, you don’t receive any interest on the savings.