
Fixed rate mortgage
With this style of mortgage, the interest will stay the same for a set period of time, usually one to five years, although 10 year fixed rate mortgages are sometimes available. This style of mortgage gives you the chance to budget effectively because you will pay the same every month. If the interest rate falls, you lose out by paying more than what you would have had to otherwise but if the interest rises, you benefit by paying less than what you would have had to otherwise.
Tracker mortgage
This is a mortgage that is linked in to the base rate set by the Bank of England and if the base rate changes, your mortgage rate changes. This mortgage is normally available over a set period of time, normally between two to five years but lifetime or term tracker mortgages are also available. With the base rate able to go up or down, you may find that the amount you end up paying each month varies significantly.
Discount mortgage
This is another style of variable mortgage and this mortgage is linked to the standard variable rate that is provided by the lender. This means that even if the base rate of the Bank of England hasn’t changed but your lender has altered their variable rate, the money you pay will differ. The standard period of time for these agreements last between one and five years.
Offset mortgage
An offset mortgage can be complicated because it ties your savings with your mortgage debt. A simple way to consider this mortgage is if you have a mortgage of £100,000 and savings of £20,000. You will only be charged interest on the £8,000 of the mortgage but the repayments are calculated on the £100,000 element of the mortgage.
This allows you to pay off your mortgage quicker, which saves you a considerable amount of money in interest. There are also tax benefits from taking this style of mortgage but there is a disadvantage in that the standard rate with an offset mortgage is usually higher than a more standard mortgage.
Buy to let mortgage
This is a mortgage that is aimed at people who buy a property with the intention of letting the property out. With the current property market showing an increase in the demand for rented property, this style of mortgage represents an investment opportunity for people. This style of mortgage usually has a higher rate and there is often a need to place a higher deposit on this sort of mortgage.
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