TYPES OF MORTGAGES EXPLAINED

Remortgage

This is when you already have a mortgage for your property, and you switch to a new deal, often with a new lender. Remortgaging help you save money by getting a lower interest rate and better terms.

First-time buyer

As a first time buyer you may have a smaller cash deposit to put towards your purchase. You might also want to do more research into the different types of loan – such as fixed and tracker rates to see which is the best type for your needs.

Buy-To-Let

A buy-to-let mortgage is one that has been designed specifically for people looking to purchase property as an investment, rather than as somewhere to live. If you’re buying a house or flat and intend to rent it out to tenants you need a buy-to-let mortgage.

TYPES OF MORTGAGES

Fixed Rate

Fixed rate mortgages have an interest rate that stays the same for a set period. It means repayments are the same every month so you’re protected from any rise in interest rates. Deals are typically between two and five years, although it is possible to get a fixed term of up to 10 years or more.

Tracker

A tracker mortgage will usually charge you an interest rate that follows the Bank of England base rate, but usually tracks a few percentage points higher. The base rate is the interest rate at which high street banks borrow money. As it goes up and down your monthly repayments will rise and fall too.

Discounted variable rate

A discounted variable rate mortgage is similar to a tracker mortgage except rather than being linked to the Bank of England’s base rate, it’s linked to your lender's standard variable rate (SVR). The SVR can change at your lender’s discretion and your monthly repayments will go up and down as a result.

Standard variable rate mortgage

A standard variable rate (SVR) is an interest rate set by your lender, usually a few percent points above the Bank of England base rate. If you are on an SVR mortgage you’re probably paying more than you need. Switching to a fixed or tracker rate deal can usually save you money and there shouldn’t be an early repayment charge.

Interest-only

An interest-only mortgage allows you to pay just the interest charged on the loan each month. You don’t have to repay the amount you’ve borrowed (sometimes known as the capital) until the end of the term. This means your monthly payments will be less than on a repayment mortgage. But you must make provision to repay the original loan.

Offset Mortgage

An offset mortgage you use your savings against the amount you owe on your mortgage, reducing how much interest you pay. The value of your savings is deducted from your outstanding mortgage balance so you pay interest on the remainder. Offsets work well if you pay more in mortgage interest than you earn in a savings account.