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Confused? Different types of mortgages explained for you

 
  14 May 2015

Given the importance of a mortgage in buying a home, it is important that people feel as though they understand their mortgage and what it means with respect to payments and costs. If you are ever in any doubt, you should always seek professional guidance because there is too much riding on a mortgage for it to be something that you can take risks with. There are two main categories of mortgages, even though there are many different mortgage types that fall within these categories. The two main categories of mortgage are:

  • Fixed rate mortgages
  • Variable rate mortgage

 

With a fixed rate mortgage, the interest rate remains fixed on your mortgage for a set period of time, regardless of what actually happens to interest rates. You’ll find that these mortgages are usually provided with a two to five year fixed rate element.  A variable rate mortgage is where the interest you pay will change as the interest rate changes. The advantage of the fixed rate mortgage is that you budget ahead, knowing exactly what you have to pay. The disadvantages of this style of mortgage comes with the fixed that the fixed rate mortgages are usually set at a higher rate than the variable rate mortgages, and of course, if the interest rate falls, you don’t get the benefit. Conversely, the advantage of a variable rate mortgage is that the rate is usually set lower and if the interest rate falls, you pay less money. Of course, the interest rate could rise by a good level, which means you will end up paying a significantly higher amount of money for your mortgage. If you are tied in to a mortgage for a certain period, there will often be charges for attempting to leave the arrangement early. You should look to arrange a new deal a few months before any fixed period mortgage comes to an end. There are a number of types of variable rate mortgages, including:

Standard variable rate – a SVR

This is the standard style of mortgage that provides the ability to overpay or even leave the agreement at any point.

Discount mortgages

This is a mortgage that has a discount applied to the SVR of the lender and again, it will usually only be on offer a number of years, typically between two and three years. With individual lenders offering their own discounts off of their own SVR, it is important to do as much research as possible. A larger discounted rate attached to a larger initial SVR may be a poorer option that taking a smaller discounted rate from a lower initial SVR.

Tracker mortgage

A tracker mortgage is one that will move directly in line with another interest rate, which is commonly the base rate of the Bank of England, with a few percent added on. Although this style of mortgage is usually available for a two or three year period, some lenders will provide tracker mortgages for the entire duration of the mortgage.

Capped rate mortgage

This style of mortgage usually moves alongside the SVR of the lender but is guaranteed not to rise above a certain level.

Offset mortgage

An offset mortgages one where your savings and your current account are linked to the mortgage which means that you will only pay interest on the difference of these sums. This allows you to pay off your mortgage earlier. If you would like more information regarding your existing mortgage or whether you are looking to get yourself on the property ladder for the first time then please get in touch here on the our website jezzards.co.uk/mortgages or by calling our offices 24 hours a day, 7 days a week on 020 8878 2257.

Try our free Mortgage Calculators

Try our free online mortgage calculators to see the difference between the different mortgages available. You can even try changing different periods of time and different rates to discover how even a small change could save you money.


Author

Jezzards Estate Agents



 

 

Jezzards properties Hampton

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