Commercial Mortgage Group
Mortgage Styles
There are a number of different styles of mortgage available in the marketplace. We explain their differences below. We will be pleased to explain in further detail all options available to customers when you first make contact.
Fixed Rate Mortgages Fixed rate mortgages are popular particularly with first time buyers, because your mortgage rate is fixed for a set number of years, usually 2,3,5 and 10 years. You know exactly how much you'll be paying each month for that length of time. The downside is that you'll be unable to benefit if interest rates fall during the duration of the fixed rate product.
Variable Rate Mortgages Every lender has a standard variable rate (SVR) mortgage. This is their basic mortgage. The interest rate goes up and down as mortgage rates generally change. They are partly influenced by the Bank of England base rate. The interest rate you pay on this type of mortgage can change even without the base rate moving.
Tracker Mortgages Tracker mortgages move in line with a nominated interest rate which is normally the Bank of England base rate. The rate will be set either above or below the base rate. When the base rate goes up or down, your mortgage rate will change by the same amount. Some lenders set a minimum rate below which your interest rate will never drop but there's no limit to how high it can go.
Discount Rate Mortgages The discount is a reduction on the lender's standard variable rate. The rate will go up and down when their standard variable rate changes. The product normally lasts for a fixed period of time, normally between 2 to 5 years.
Capped Rate Mortgages This is a variable rate mortgage but one with a ceiling (a cap) on how high your interest rate can rise. You have the comfort of knowing that your repayments will never exceed a certain level while you can still benefit when rates go down. As mortgage rates generally have been low in recent years and there are better deals around, lenders don't offer capped rate mortgages at the moment. This is good for buyers who believe mortgage rates are going to get a lot higher.
Cashback mortgages With this type of mortgage, the lender typically pays you a percentage of the loan. This isn't necessarily as attractive as it first sounds. You should look carefully at the interest rate being charge and any additional fees as you'll likely find cheaper mortgages without cashback.
Offset Mortgages Offset mortgages are liked to a savings account and combine savings and mortgage together. The lender on a monthly basis looks at how much you owe on the mortgage and then deducts the amount you have in savings. You pay mortgage interest just on the difference between the two figures. This cuts the amount of interest you pay but the mortgage rate is likely to be more expensive than on other deals. You can still access your savings if you need to but the more you offset, the quicker you'll repay your mortgage. When you use your savings to reduce your mortgage interest, you won't earn any interest on them but you won't pay tax either which is particularly helpful for higher rate taxpayers.
95% Mortgages These are for people who can afford only a 5% deposit. With such a small deposit you are at risk of falling into negative equity if house prices fall. Because of the additional risk, lenders will normally charge a comparatively high mortgage rate.
Flexible Mortgages Flexible mortgages give you more leeway with making repayments. You can choose to pay in more than your regular amount when you can afford it (this option is also available on many other types of mortgage). And, unlike other mortgages, if you have already overpaid you can pay less if you hit a difficult patch or even take a payment holiday and miss a few payments altogether. In return for this flexibility, the mortgage rate will be higher than on other deals. This is good for buyers who suspect they will run into financial problems in the future.
First Time Buyer Mortgages First time buyers can apply for any of the types of mortgages listed above. The government also has schemes to help people struggling to get on the mortgage ladder with its Help to Buy schemes.