Different types of mortgages explained

When it comes to the different types of mortgages, there are many payment plans and terms available, each designed to cater to your unique circumstances. Factors to consider when selecting a mortgage include:

Whether it’s your very first mortgage or you’re remortgaging the family home, we’re here to help you better understand the different types of mortgages available. More importantly, we can help you find a deal that’s best suited to your individual needs. 

What is a fixed-rate mortgage?

First and foremost, the fixed-rate mortgage is the bread and butter of mortgage deals. This kind of loan is suitable for those aiming for more stability and predictability in their monthly payments. 

This type of mortgage does exactly what it says on the tin. There’s an agreed fixed rate of interest at which you pay your loan back to the lender. Meaning your monthly repayments remain the same amount for a set period (usually up to five years).

The beauty of this mortgage is that even though interest rates may rise, you can sit comfortably knowing that your payments won’t creep up with them. Of course, this also means that if rates drop during your mortgage term, you’ll still need to pay the same agreed mortgage rates. 

What is a standard variable rate mortgage (SVR)?

If your current mortgage has reached its maturity and a new deal needs to be struck with your bank or building society, most lenders will refer to a standard variable rate (SVR) as their rolling rate. Some lenders even offer this rate to those taking out a new mortgage, as opposed to only transferring their old one. It’s always best to check with us or your lender to see if this is available. 

It’s important to note that with a standard variable rate mortgage, your monthly payments can rise and fall over time to reflect inflation rates. Under this variable mortgage type, you will also find many other mortgage types including capped rate, discounted rate and tracker mortgages.

What is a tracker mortgage?

When it comes to standard variable rates, your lender will usually weigh up this percentage against the Bank of England’s base rate. On the first Thursday of each month, the Bank of England will reassess these rates and change their base rate according to inflation. It’s important to note that in recent years this hasn’t wavered too much. 

A tracker mortgage literally tracks and follows the base rate to offer you an interest payment that sits in line with this rate. Many banks will determine the amount of interest you pay by the Bank of England base rate, plus or minus an agreed percentage. 

What is a discounted rate mortgage? 

Everybody loves a discount and mortgages are no exception! With a discounted rate mortgage, your interest rates will be set at a fixed percentage lower than your lender’s standard variable rate (SVR). 

This mortgage type uses the SVR as a benchmark. If the SVR drops, the discounted rate will also drop and the same goes if the SVR increases. Lasting usually two to five years, this mortgage type can offer some real benefits to homeowners, with the possibility of reduced payments if the SVR drops. However, as with any variable rate mortgage, you run the risk of higher payments should the Bank of England base rate increase.  

What is a capped interest rate mortgage?

If the prospect of a rising SVR affecting mortgage payments causes too much uncertainty or stress, the capped interest rate mortgage type is the one for you. Working in a similar way to other variable-rate mortgages, the capped interest rate will rise and fall with the Bank of England base rate and your lender’s SVR. 

However, the difference here is that a maximum limit will be applied so that your payments can never exceed this maximum. You can still benefit from the perks of a falling SVR though! 

What is an offset mortgage?

If you’re a homebuyer with a rainy day pot set aside, then an offset mortgage might be the one for you. This mortgage type works by hooking up your mortgage to your savings account. By doing this, you can deduct the value of your savings from your interest, meaning cheaper monthly payments for you! The only negative in doing so is that you will not be able to gain interest on your savings. 

What is a green mortgage?

With the climate crisis and home sustainability creeping higher on the agenda for property owners and developers alike, many lenders are now looking to bring green mortgages to the forefront of lending. 

Essentially this mortgage type offers complimentary rates and benefits to its users, in return for choosing to buy homes with low Energy Performance Certificates (EPC). These tend to be newer homes or those which have undergone eco-home improvements such as new insulation, efficient boilers or even solar panels.     

What is a flexible mortgage? 

With so many mortgages fixed on terms and repayment types, sometimes it’s nice to know there’s still room for flexibility. This mortgage type is brilliant for those who may work for themselves or have irregular income and want the option to pay more or less each month. Flexible mortgages allow you to delay mortgage payments, repay your loan early or, in some cases, take back the cash that you now require. 

What’s the catch? Whilst this mortgage may feel like the holy grail of mortgages, it’s only available to certain customers. If you’re currently purchasing a second property, you have a rocky payment history or are currently taking out DSS benefits, then this mortgage may be trickier to come by. 

How we can help with the different types of mortgages…

Whether you’re buying your very first home and don’t know where to start, or you simply want to compare the market for the best deals and rates, we can help! Get in touch with our fantastic team and takr those first steps towards a new and exciting future.

To discuss the different types of mortgages available to you, give us a call on 0345 1645790 or email us at info@chartwellms.org.uk. You can also request a call back via our online form.