Mortage types

What is a Mortgage? 

Put simply a mortgage is a loan secured against a property and as such, the lender holds a legal charge over the property until the debt is paid. The lender will check affordability before offering a loan and will base their lending decision on your financial situation. Lenders are typically banks or building societies and usually have a specialist to handle mortgage applications. They will go through the different types of mortgages to see which are the best fit. If you have a poor credit history, it may be more suitable to consult a mortgage broker as they can search the market outside the normal lending institutions. 

 

Fixed-rate mortgage

No surprise here, they have an interest rate fixed for a duration. They are useful as the lender can quickly determine future repayments. They are usually fixed for a period of between two and ten years, typically the longer the period the higher the interest rate. Most carry an arrangement fee.

 

Standard variable rate (SVR) mortgage

This is the default mortgage type that you would be transferred to when a fixed, tracker or discount mortgage ends. Each lender sets their SVR interest rate, they tend to be a higher interest rate than the other mortgage types. The downside with this mortgage type is that the lender can change the interest rates, however, in practice, they tend to have a premium of 2-5% over the Bank of England’s base rate.

 

Discount mortgage

Essentially a mortgage where the interest rate is set at a set rate below the typical SVR mortgage rate. Discount mortgages generally run between 2 and 5 years.

 

Tracker mortgage

Like an SVR mortgage but are usually capped at around two to five years.