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Different Types of Mortgages

We understand that buying a home is a huge commitment and so you want to get it right. Mortgages are a fundamental part of the home-buying process, but with so many different ones available it can be difficult to know which one to prepare for before you make your application.

What are the most common types of mortgages available in the UK?

The specifics of each mortgage product, including the product name and criteria vary between lenders, but generally these are the most common types of mortgages in the UK:

  • Fixed-Rate Mortgage
  • Tracker Mortgage
  • Discount Mortgage
  • Offset Mortgages
  • Interest Only Mortgages
  • Equity Release Mortgages

Fixed-Rate Mortgage

A fixed-rate mortgage is where the interest rate remains the same for a fixed period. This means your monthly mortgage repayments remain the same, regardless of any changes by your lender’s standard variable rate or changes in the Bank of England’s base rate. The fixed repayment may allow you to budget easier without worrying about interest rate fluctuations during the fixed period.

Tracker Mortgage

A tracker mortgage is a type of variable-rate mortgage where interest is set as a fixed percentage above the Bank of England base rate. This means your monthly repayments can rise or fall if the base rate changes. Like fixed-rate mortgages, there are some terms for tracker mortgages, but it is possible to also take out a lifetime or a tracker term mortgage for your entire mortgage term.

Discount Mortgage

A discount mortgage (discounted variable-rate mortgage) offers a discount off the lender’s standard variable rate for a set period. This means that your monthly repayments can go up or down, depending on any changes to the lender’s standard variable rate, so even if the Bank of England’s rate does not change, your mortgage repayments can be more expensive if your lender decides to increase their standard variable rate.

Offset Mortgage

An offset mortgage is linked to your current and/or savings account, which means you can use your savings against the amount you owe on the mortgage. This means you reduce the amount of interest you pay, as the value of your savings is deducted from the outstanding balance on the mortgage, so you pay interest on the remainder.

Interest-Only Mortgage

Interest-Only mortgages are where the borrower only pays the interest on the mortgage loan each month. This means you only pay money back on the interest and you do not repay on the amount you have borrowed – which is called the ‘capital’. However, you will need to repay the capital at the end of your mortgage term.

Equity-Release Mortgage

An equity release mortgage is a type of loan that allows homeowners to access some of the value stored in their property without having to sell their home. When the borrower passes away, moves into care or the house is sold, the amount that is borrowed is then repaid plus interest.

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