Are you wondering “What are the different types of mortgages available?” What are the differences between fixed, variable, tracker and discounted mortgages?
When you’re shopping around for a mortgage especially if you are a first time buyer, it can be a confusing time, as there’s an abundance of products that offer different benefits for different reasons. Spend just a little time researching the subject online and you’ll see for yourself, meaning that finding the right one for your needs is certainly something that will involve the input of a mortgage broker if you wish to get the whole picture.
So, in order to provide some clarity, we’re now going to look at the differences between mortgage deals, highlighting the advantages each one offers. So, let’s dig in.
Variable Rate Mortgages
The first one we’re going to look at is the variable rate mortgage, which as the name suggests features an interest rate that can fluctuate. Depending on whether the lender’s rate rises or drops will determine how low or high your monthly payment is. Typically speaking, if you’re on a variable rate product, you may want to get some professional mortgage advice , as it might not be the best mortgage for you. It leaves you open to the effects of the interest rate, but having said that, when it drops, you enjoy the drop too.
If your mortgage broker suggests a tracker mortgage, you’ll get a product that ‘tracks’ the variations of an external rate (typically the Bank of England Base Rate). The term ‘track’ is used because it doesn’t exactly match this external rate, rather it offers the base rate plus, for example, 1.00%. So, in this case, if the Bank of England’s base rate is 1%, your rate will be 2%. Mortgages of this type can come as short term deals where your rate jumps after a set number of years (usually 2-5) or as a ‘lifetime tracker’ mortgage that stays in place throughout the term of your mortgage.
Discount Rate Mortgages
Another type of mortgage that has a rate that moves in line with the lenders SVR is the discount rate mortgage, which is set at a certain percentage below it. Again, this arrangement is usually put into place for a set amount of time (2-5 years typically) and it means that when the lender’s rate goes up, so do your payments, meaning that it’s another type of variable rate mortgage.
The last one on our list is the fixed-rate mortgage, with the rate, as you’ve probably already guessed, being fixed for a certain number of years. So, if the interest rate happens to rise, your monthly payment won’t be affected. After the end of your fixed-rate term, which can be anywhere between 2-5 years, you’ll revert to your lender’s SVR.
The only time you’ll lose out with a fixed-rate mortgage is when the rate dips below your set rate and remains there.
Free, Impartial Mortgage Advice
Well, as we can see there are a variety of ways you can look at the question of which mortgage is right for you. Is the interest likely to stay low? If yes, then the variable rate deals are going to be a good option, whichever version of it you opt for. If the answer to the question is no and rates look likely to rise, then fixing your deal suddenly becomes a very attractive option, as you’re protected from rising payments. We have mentioned a couple of things in this blog which you might be thinking I am not sure what that actually means – so check out our recent blog on Mortgage Terminology – what does it all mean.
At Yes Mortgage Services, we offer completely impartial mortgage advice and we have a dedication to finding the best mortgage and remortgage deals for our customers. We don’t charge a brokerage fee either, so all of the mortgage advice we offer is free in every sense of the word.
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