In the world of home-buying, it can be incredibly difficult to know what type of mortgage to go for if you’re not advised. While you’ll likely have a mortgage advisor before going into buying your property, it’s good to know the types yourself so you know what you’re getting yourself into.
Fixed Rate Mortgage
Fixed rate mortgages are exactly what it sounds like they are. This type of mortgage will ensure that your monthly mortgage and interest payments are at a fixed rate. It is a safe option for first time buyers as there is a guarantee that your monthly outgoings will stay the same.
The great thing about fixed rate mortgages is that they can provide an element of certainty for people wanting to pay the same amount every month with no hassle.
The only real downside that comes with fixed rate mortgages is that they’re usually at a higher rate than other mortgage – but with no risk of getting higher. The rates will also have no chance of ‘going down’ if the interest rates were to fall, as it is fixed. So, like anything, it comes with its pros and cons.
Tracker Mortgages
Tracker mortgages are the lesser-known ones, and these types of mortgages have an interest rate linked to the Bank of England, plus a percentage rate set by a lender.
The interest rates can vary quite drastically throughout your contract depending on the base rates level of fluctuation. (The base rate being the Bank of England.)
These mortgages are also usually only between 2 and 5 years long. On the positive side of tracker mortgages, this means that lenders can’t choose your rates due to it being linked to a known source.
On the flipside, a con to these types of mortgages is that the mortgage payments are very fluctuated and can change at any time. If the Bank of England’s rates rise, so will yours. This mortgage wouldn’t come with the same certainty as a fixed rate would.
Standard Variable Rate (SVR)
A standard variable rate mortgage is a set standard set by your mortgage lender.
Unlike a tracker, your lender can choose when the rates go up and down.
The pro of this kind of mortgage is that you’re not tied to a set period of mortgage and its generally quite a flexible option with no early repayment charges.
A con to this type of mortgage is that you will not get notice if your lender decides to rise or drop your rates, whereas with a tracker, the bank will let you know in advance.
Discount Standard Variable Rate
For these types of mortgages, they are like standard variables, the difference with discount variables is that you get a discount for a set amount of time by discretion of your lender.
This can however change at any time, depending on income changes. Like the mortgage and interest rates, the rate can increase and decrease at any time.
Others
There are so many types of mortgages, Cashback, Offset and so much more - and if you’re a first-time buyer, its likely you’ll be doing a newer scheme that may put you into an entirely new category. For instance, you may have signed up to the Help to Buy Scheme, or the Generation Buy scheme – and so many more government helped avenues to buy for young people today.
All mortgages listed are currently active in the UK and depending on your financial situation and personal risk preference, there are plenty for you to choose from, so why not choose a mortgage that suits, whether you’re a first time buyer worried about longer mortgage terms or whether you’re an investor looking to buy at optimal times.
By Caitlin Stimpson