Different Types of Mortgages Leaflet Explained
11th Nov 2022
A fixed-rate mortgage will mean your monthly payments should stay the same until an agreed date, no matter what happens to interest rates in the market.
Fixed-rate periods come in various different lengths, for example, 2, 3 and 5 years.
Tracker mortgages follow the Bank of England’s Base Rate and rise or fall along with it. The interest rate charged is the Bank of England’s Base Rate plus an agreed margin.
There are ‘lifetime’ trackers for the life of the mortgage, and term trackers which may be for 2 or 3 years.
Standard variable rate (SVR) mortgages
The SVR is the rate of interest that’s usually charged once a fixed rate or term tracker period ends. You can usually move to another fixed or tracker product instead of moving onto a SVR, if you wish.
Some lenders may also let you take out a mortgage on their SVR. Your lender decides the rate and may decide to increase or decrease it over the period of your mortgage.
Discount rate mortgages
Discounted mortgages offer you a reduction from the lender’s Standard Variable Rate (SVR) for a certain period of time, typically two to five years.
Mortgages with discounted rates can be some of the cheapest deals but, as they are linked to the SVR, your rate will go up and down when the SVR changes.
Understanding your repayment options
When deciding on a mortgage, you also have payment choices to make:
- Capital repayment
- Interest only
These options need to be considered carefully.
What is a capital repayment mortgage?
With a capital repayment mortgage, the monthly repayments include an element which repays the borrowed capital, as well as a payment for the monthly interest of the loan.
With this repayment method, you can ensure your mortgage is fully paid off at the end of the mortgage period, as long as you haven’t missed any repayments.
What is an interest-only mortgage?
With an interest-only mortgage, your monthly payment only covers the interest charged on your loan for that month, so the amount you owe in capital doesn’t reduce over time.
You’ll need to demonstrate to the lender that you’ll have some way of paying off the debt in the future (such as an investment or a second property you could sell).
Interest only mortgages are commonly chosen for buy to let properties.
Speak to us, we’ll guide you through your options 📲 0161 962 7800 option 3
Or submit an online enquiry here via our online portal, 3mcView.
Your home may be repossessed if you do not keep up repayments on your mortgage.