A Guide to the most common types of Mortgage

There are many different type of mortgage products available on the market today. These are the main ones, but lenders can offer combinations of the following products. To ensure that you opt for the right one, please call us. We can only make a recommendation after we have assessed your needs fully.

• Fixed Rate
• Discount
• Base Rate Tracker
• Capped Rate
• Offset
• ​Cashback

Fixed Rate Mortgage

Typically, you can fix the interest rate on your mortgage for period ranging from 2 years to over 10 years. This will mean your mortgage repayments will remain unchanged, even if interest rates rise. You will have certainty of knowing how much your monthly repayments will be and will not go up during the lifetime of the fixed rate, no matter how high interest rates rise generally. 
This scheme offers security, peace of mind and stability to your finances. The down side is that your mortgage payment will not go down if interest rates fall and if you want to get out of the fixed rate early, you may have to pay high penalties.

Discounted Mortgage

A discounted mortgage gives you a lower initial rate for an agreed period of time, for example 2 years or 3 years. A discounted mortgage will offer a discount off the lender’s Standard Variable Rate (SVR). This will usually be cheaper initially than a fixed rate, and if interest rates drop, your mortgage rate is likely to drop too. If you want to pay the mortgage off early, you may have a high penalty to pay. There are often discounted schemes available that do not have any penalties, but with a higher initial rate. The rate you pay is affected by commercial decisions made by the lender you are with, and is not directly linked to decisions made by the Bank of England. ​

Base Rate Tracker Mortgage

The difference between a tracker rate mortgage and a discount rate mortgage, is that a tracker mortgage is directly linked to the Bank of England Base Rate. This is why they are referred to, as Base Rate Trackers (BRT). In this case, your mortgage is guaranteed to move in line with any changes made by the Bank of England to the Base Rate and would be affected by economic conditions.
If the Base Rate falls, then your mortgage interest rate will fall too, but equally should the Base Rate increase, your mortgage rate will increase by the same amount. If interest rates rise this could result in a more expensive mortgage when compared to a fixed rate.

Capped Rate Mortgage

A capped rate mortgage will help with your budgeting, offering a degree of security while still being able to benefit should interest rates fall. The Interest rates can move up and down with the market, but will never exceed a specified top level – ‘the cap.’  You benefit if interest rates fall, but will be protected if interest rates rise. These products are not always available.

Offset Mortgages

An offset mortgage, uses the balance in your everyday savings account to reduce what you owe on your mortgage on a daily basis. This can amount to substantial savings in interest over the term of the loan or can result in repaying your loan quicker. It is particularly beneficial to people who will have savings when they have moved, and those wanting to make their savings work harder for them. It can be useful to the self-employed and higher rate tax payers in particular, but generally anyone with savings can benefit from this type of scheme. You can usually have a combination of a fixed, variable or tracker rate with an offset account.

Cashback

Some products have a cashback offer attached to them combined with a fixed or tracker rate. Products offering higher amounts of cashback tend not to offer any discount off the interest rate and you may be locked in for a period of time.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

If you are experiencing financial difficulty and struggling to make repayments, then you can contact your lender who may be able to help taking account of your individual circumstances.

You may want to contact one of the free impartial money guidance and debt advice services such as StepChange, Citizens Advice, or Turn2Us.

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I think this is the 5th mortgage I’ve arranged through Andy at Clear Choice. I couldn’t have predicted what a fantastic deal we got switching mortgages and it was all done in 24hrs. Amazing! Thanks as always!”
Mr B, Nottingham