When purchasing a property in the UK, most people require a mortgage to finance their dream home. However, there are various types of mortgages available, each with its own set of benefits and drawbacks. To make an informed decision, you need to understand the different mortgage options and what they offer.
Here, we will explore the various types of mortgages available in the UK:
1. Fixed-Rate Mortgages
A fixed-rate mortgage is one of the most popular types of mortgages available in the UK. As the name suggests, the interest rate is fixed for the entire mortgage term, typically two to five years, providing certainty over monthly repayments. This type of mortgage is ideal if you want to budget for a fixed amount each month with no surprises.
2. Tracker Mortgages
A tracker mortgage’s interest rate follows the Bank of England base rate, rising and falling in tandem with it. The mortgage rate is a set percentage above (or below) the base rate. This type of mortgage is ideal for those who don’t mind their repayments changing based on interest rates.
3. Discount Mortgages
A discount mortgage is where the interest rate charged is a percentage less than the lender’s standard variable rate (SVR). The discount rate is often fixed for a period of two to five years and reverts to the SVR at the end of the discount period. This type of mortgage can be attractive as you pay less than the lender’s SVR but bear in mind that the percentage discount can change.
4. Standard Variable Rate Mortgage (SVR)
SVR is the default interest rate for a mortgage after the initial fixed, discounted, or tracker period ends. The lender sets its SVR, meaning it can be changed at any time, resulting in a change in your mortgage repayments. This type of mortgage is not often the most competitive option available, so it’s important to review your options when your initial rate period ends.
5. Flexible Mortgages
With flexible mortgages, you can overpay without penalty, underpay, take payment holidays or combine these options according to your needs or life events. This type of mortgage offers a degree of flexibility, but you are typically charged a slightly higher interest rate in exchange for this type of flexibility.
6. Buy-to-Let Mortgages
Buy-to-let mortgages are for landlords who purchase properties to rent to tenants. This type of mortgage has a higher interest rate than standard residential mortgages as the potential for rental income is viewed as a higher risk by the lender. They are typically interest-only rather than capital repayment, meaning the repayments will not reduce the debt owed.
In conclusion, choosing the right type of mortgage for you will depend on your individual needs and circumstances. Be sure to shop around, get multiple quotes, compare them, and take expert advice where needed to help you make the best decision for you and your family.