There are a variety of mortgage types available in the UK, each with its own advantages and disadvantages. Here is a brief overview of some of the most common types of mortgages:
Fixed-rate mortgages: Fixed-rate mortgages offer a fixed interest rate for a set period of time, typically 2, 3, 5, or 10 years. This can make budgeting easier, as your monthly repayments will remain the same for the duration of the fixed-rate period. However, if interest rates fall during this time, you may be paying more than you need to.
Variable-rate mortgages: Variable-rate mortgages have an interest rate that can fluctuate in line with the Bank of England’s base rate. This means that your monthly repayments could go up or down. Variable-rate mortgages can be a good option if you are comfortable with the risk of your monthly repayments changing.
Tracker mortgages: Tracker mortgages track a specific interest rate, such as the Bank of England’s base rate or a lender’s own standard variable rate (SVR). This means that your interest rate will move up or down in line with the tracker rate. Tracker mortgages can be a good option if you want to benefit from any potential interest rate cuts, but you also need to be aware of the risk of your monthly repayments increasing.
Discount mortgages: Discount mortgages offer a discount on the lender’s SVR for a set period of time, typically 2, 3, or 5 years. This can make your monthly repayments lower than they would be on a standard variable rate mortgage. However, after the discount period ends, your interest rate will revert to the lender’s SVR.
Capped-rate mortgages: Capped-rate mortgages have a maximum interest rate that the lender can charge, even if the Bank of England’s base rate rises. This can give you peace of mind knowing that your monthly repayments will never go above a certain amount. However, capped-rate mortgages typically have higher interest rates than other types of mortgages.
Offset mortgages: Offset mortgages allow you to link your savings account to your mortgage account. This means that your savings will offset the balance of your mortgage, which can reduce your interest payments. Offset mortgages can be a good option if you have a large amount of savings and want to reduce the cost of your mortgage.
In addition to these main types of mortgages, there are also a number of specialist mortgages available, such as mortgages for first-time buyers, self-employed borrowers, and people with bad credit.
When choosing a mortgage, it is important to consider your individual circumstances and needs. You should also compare offers from different lenders to ensure that you are getting the best deal possible. It is also a good idea to speak to a financial advisor to get personalized advice.