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What are the different types of mortgages available?

Deciding which type of mortgage is best for you can be confusing, and we’ve written a mortgage guide for beginners which is a good place to start your research. It’s important to understand the different types of mortgages that are available in the UK so we have explained them here:

Fixed-Rate Mortgage

A fixed-rate mortgage is one where the interest rates remain the same for the duration of the loan (normally 2, 3, 5 or 10 years). These mortgages are usually best for those who plan to stay in their property for a long time so that you’re not having to worry about your monthly payments changing as time goes on.

It can also be useful to get a fixed mortgage in times of economic uncertainty when interest rates rise unexpectedly.

(SVR) Standard Variable Rate

This rate is based on the lender’s SVR and its variable, so your payments can increase or decrease based on the rate chosen by your lender. This is generally expensive and your lender can change the rate whenever they feel it’s best to.

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Tracker Mortgages

Payments on your mortgage may go up or down depending on the amount of the mortgage and the interest rate. If the interest rate is variable it is usually set at a fixed percentage above or below the base rate.

Capped Rate Mortgage

Your payments can increase or decrease with this type of variable mortgage. However, the interest rate set by the lender is capped so the rate of interest won’t go above or even below the set amount. Capped rate and tracker mortgages are pretty similar but the key difference between the two is capped rate mortgages have a maximum rate that cannot be surpassed.

Discounted Mortgage

This mortgage product allows you to reduce your monthly payments during the discount period below the lender’s SVR. You’ll pay less than the standard SVR for a short period, and then the mortgage rate will go up after that for the rest of the mortgage period. For example, if you agreed on a 2 year discounted mortgage at 1%, you’d pay 1% below the SVR every month for 2 years.

The interest rate will return to the SVR after the discounted mortgage period. The SRV will still increase and decrease so your payments will go up or down each month.

Offset Mortgages

You can lower your payments by linking your mortgage to a savings account or current account. For example, if you had a mortgage of £150,000 and you had £30,000 in your saving, you would be charged interest on only £120,000. This would be handy for self-employed people who have saved money for their tax returns or people who have set aside a lot of money in their savings.

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First Time Buyer Mortgages

For first time buyers, there are mortgage types for them including:

Shared Ownership

If you’re a first-time buyer or if you’re considering buying a property you might want to take a look at this product. It allows you to purchase a share of a property and pay rent to the housing association to the share of the house that you don’t own. You will have to buy 10% of the house value but you may have the option to buy future shares in the property but this can be different from the scheme to scheme.

Depending on the booking and arrangement fees and any other charges that apply, you should compare the different products offered before making a decision.

Help to Buy: Equity Loan Mortgages

A Help to Buy: Equity Loan mortgage is a type of UK mortgage which has been introduced specifically for first-time buyers looking to purchase a new home.

With a minimum of a 5% deposit, you can sort out an equity loan of up to 20% or 40% (in London) from the government of the value of a new-build home. After an interest-free equity loan of 5 years, you’ll have to a pay 1.75% fee which increases each year via the Consumer Price Index (CPI) increases plus 2%. Look on the Help to Buy website for more information as this value may be subject to change.

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