DIFFERENT TYPES OF MORTGAGES

A fixed-rate mortgage means that the interest rate will stay the same for a particular length of time. Once the term comes to an end, you can expect to be transferred to the lender’s standard variable rate (SVR).

The benefit of a fixed-rate mortgage is that you have the security of paying the same amount monthly regardless of whether your lender’s SVR or the Bank of England Bank Rate changes.This mortgage is a good option for long-term financial planning. Many first-time buyers prefer the safety and stability that a fixed-rate mortgage can bring.

However, fixed-rate mortgages tend to be more expensive than mortgages pegged on variable rates because you pay a premium for that extra peace of mind. In addition, you would not be able to capture any of the benefit if interest rates were to drop – which, in this current climate, is unlikely.

The interest rate on a discount mortgage is tracked at a discount to the lender’s SVR for a particular length of time.

The rate can therefore vary. Normally, the steeper the reduction, the shorter the period of discount will be. When your deal finishes, your lender will normally transfer your mortgage on to its SVR.

The advantage of agreeing this type of variable rate mortgage is that you know that your rate will remain less than your lender’s SVR. However, unlike the fixed-rate mortgage, interest rate changes do have an impact.

As with the fixed rate and tracker options, unless you sort out another deal, you will see a jump in rates when your mortgage deal comes to an end and you revert to the SVR.

A tracker mortgage typically follows the Bank Rate, the benchmark interest rate set by the Bank of England, for a certain period.

It often tracks the Bank Rate by a particular margin.

It is a type of variable rate mortgage so your monthly repayments can change. If the Bank Rate increases, so will your mortgage repayments.

When your deal draws to a close, your mortgage will likely be swapped on to the lender’s SVR.

A lender’s SVR normally doesn’t have any deals or discounts included and tends to be a more expensive way to clear your mortgage. You are also not protected from rate changes.

Most people are advised to move from a SVR at the earliest opportunity to find a cheaper deal.

Your lender controls its own SVR, meaning your monthly repayments can go up or down.

The SVR tends to be influenced more widely by the Bank of England Bank Rate, but a lender’s SVR can change independently of changes in the Bank Rate.

Because it’s tough for first-time home buyers to save a big enough deposit to access mortgage deals and get their foot on to the property ladder, there are a growing number of lenders offering mortgages that allow parents to contribute.

If parents or family members agree to take on some of the risk associated with lending to you, lenders are more likely to agree a bigger tranche of capital and at a better rate.

A guarantor mortgage allows parents or family members to cover repayments if you are unable to.

An offset mortgage allows you to link your current and savings accounts to your mortgage.

You will be able to save money using this type of mortgage because it cuts the amount of interest due by only charging interest on the net balance.