These are the five types of mortgage that are commonly available, and you can find some information about them below to help you make the right choice.
This is one of two types of variable-rate mortgage. For this one, the interest rate tracks the base rate of the Bank of England, which you would pay plus the base rate of the mortgage lender. It is common to start out with a tracker mortgage before moving to a more standard variable rate. There are a number of ‘lifetime’ tracker mortgages where they will track the Bank of England rate for their duration.
The second type of variable-rate mortgages – here you will pay the standard variable rate, set by the lender, with a discounted fixed amount deducted. Within the duration of the mortgage, discounted deals may be ‘stepped’ where you might pay different rates for set periods. You can find out more information about mortgages on individual lenders’ websites.
Deciding on which variable-rate mortgage you might want to choose will depend on how likely your income is to change and if you could manage financially with an increase in payments.
Standard Variable Rate Mortgages
Every mortgage lender has their own standard variable rate (SVR) which they can set to any level they wish. The lenders are also able to change their SVR, potentially increasing your payments, at any time they choose. Lenders will provide further information about mortgages on request.
Fixed Rate Mortgages
For these, you will pay the same of interest for the duration, no matter what happens elsewhere. These usually come as two- or five-year deals, after which you will be put on the lender’s SVR. These are particularly helpful, as you will know how much you are going to pay each month. More information about mortgages such as these can be found online.
Choosing between fixed or variable-rate mortgages depends on your ability to deal with changes in payment or need to know the monthly payment amount.
Interest-Only and Repayment Mortgages
With an interest-only mortgage, you are required to pay only the interest accrued each month and then pay off the entire amount at the end of the mortgage term. With a repayment mortgage, each month you would pay off some of the loan and interest in one payment. This is the most common type of mortgage.