Different mortgage products

First Time Buyers Guide:  #3

Different mortgage products 

There are various types of mortgage deal, which one is best depends on a borrowers individual circumstances.

Fixed Mortgage

With a fixed rate mortgage, repayments are fixed at the beginning of the mortgage term and remain the same for the duration of the deal. The borrower is in effect taking out insurance against the interest rate going up. Most fixed mortgage deals revert to the standard variable rate on expiry.

Variable Mortgage

Variable mortgage rates change over time depending on UK economic conditions. There are three types of variable mortgage available, these are standard variable, tracker and discounted. Variable rates are not always available to new customers and first-time buyers.

Standard Variable Mortgage

Standard variable rate mortgages are usually a couple of percentage points or so higher than the Bank of England base rate and, they shift in line with base rate movement. It is worth noting that while lenders are usually quick to pass on any interest rate rise, they are often not so quick to pass on any interest rate fall.

Tracker Mortgage

A tracker follows the Bank of England base rate precisely. Trackers may have a 'collar', below which the rate will not fall. 'Lifetime trackers' follow the base rate for the duration of the mortgage.

Discount Mortgage

A discounted mortgage usually offers a discount on the lender's tracker or standard variable rate, discount periods tend to be relatively short.

Capped Mortgage

Capped mortgages are a hybrid product where rates move in line with the Bank of England base rate but, a guaranteed maximum 'cap' is agreed above which repayments will not rise, regardless of what happens to the Bank of England rate.

Cashback Mortgage

With a cashback mortgage, the lender will give cash back. The cash received can then be used to pay mortgage fees or help a first-time buyer to set up in their first home. Generally cashback mortgages charge higher rates than standard loans and have penalties for early repayment.

Current Account Mortgage (CAM)

Current account mortgages combine both a mortgage and current account into one balance. The standard monthly repayments are designed to clear the mortgage whatever term, any extra money in the account will act as an overpayment meaning the mortgage will be paid off more quickly.

Offset Mortgage

With an offset, the mortgage, current account and savings are held in separate pots. Savings are then used to pay off more of the capital which will help clear the mortgage early.

 Next - #4 Before accepting a mortgage deal