Types of Mortgages
There are many different types of mortgage and remortgage – fixed rates, trackers, variable, discounts, interest only and repayment to name but a few.
If the mortgage that you’re looking for is not mentioned in this section, please get in touch and we’ll be happy to explain more about that particular mortgage.
Fixed rate mortgages
These fix the interest rate for a specified period of time, perhaps 2 years, 3 years, 5 years or even 10 years, so the interest rate on the mortgage and the monthly payments remain constant for that period of time – so you know exactly what you’re paying each month!
At the end of the fixed rate period you generally move onto the mortgage lenders own Standard Variable Rate (SVR) – normally around 2%-3% higher than the Bank of England Base Rate.
During a fixed rate period you are normally tied in to the mortgage with early redemption penalties payable should you wish to pay off the mortgage in part or full. After the fixed rate period you are normally free to redeem the mortgage in full without penalty* – allowing you to remortgage if you want to.
These are directly linked to the Bank of England Base Rate (BBR). They could be the same as the BBR or they could be a specific amount above or below the BBR – the key point is that they are directly linked to the BBR.
If a mortgage is a 2 year Base Rate+2.25 it means the interest rate will be the BBR plus 2.25% for 2 years.
If the BBR was 3.0% then 3.0% + 2.25% = 5.25%.
These are essentially discounts from the banks/building societies own Standard Variable Rates (SVR).
If a mortgage is a 2 year 1.5% discount it means the interest rate will be the Mortgage Lender’s SVR minus 1.5% for 2 years.
If their SVR was 5.0% then 5.0% – 1.5% = 3.5%
Interest Only Mortgages
You only pay the interest being charged on the loan, not any of the capital that you have borrowed.
If you carried on paying a mortgage on an interest only basis for the whole mortgage term you would still owe the full amount you had borrowed at the end of the term.
These are often known as Capital & Interest Mortgages, where you pay back some of the capital borrowed each month as well as the interest on the loan, such that you will have cleared the mortgage in full at the end of the term.
With repayment mortgages the “term” is important. The shorter the term, the higher the monthly repayments (you are paying back more of the capital each month) but the lower the total overall cost (you have the debt for a shorter period of time and pay less interest).
Repayment mortgages are generally preferred over interest only mortgages however we always advise on the most suitable mortgage to meet both current requirements as well as longer term objectives. When it comes to the actual term of the mortgage, it may well change at different stages throughout your life depending on your circumstances and the affordability.
This can form part of a home mover purchase mortgage or remortgage where expensive unsecured debt becomes secured on the property, often lowering the interest rate payable and monthly outgoings. There are risks of doing this so it is always worth contacting a professional adviser to help decide if this is the most appropriate course of action.
Shared Ownership Mortgages
These are available on certain properties and offer an alternative to outright purchase, providing an affordable way to get onto the housing ladder.
Essentially a proportion of the property is offered for sale, for which we arrange a mortgage and you pay rent on the remaining part that is not purchased.
Please note that for all the above types of mortgages a broker fee may be payable on completion. The precise amount will depend on your circumstances. Please ask for a personalised illustration.