Variable

As the name suggests, the interest rate can rise or fall, your monthly payments follow the standard variable rate of the lender. Whilst you benefit if rates go down, you also pay more if rates go up. You cannot accurately budget for your mortgage repayments. You will find that this product will have no early repayment charge and normally no arrangement fee.

Discounted Rate Mortgages

The lender offers a true initial discount, for example a reduction of 0.5% on their normal variable rate for a given period, commonly two years.

Whilst you benefit if rates go down, you also pay more if rates go up. At the end of the discount period, the rate reverts to the lender's variable rate applicable at that time.

You may have to pay an arrangement fee and there may be an early repayment charge during the discount period

Tracker / Tracker Discount Rate Mortgages

The benefit period can be from 6 months to the whole term of the mortgage.

The interest rate you pay does not reflect the lenders standard variable rate, but is linked to the Bank of England Base Rate ensuring your payments reflect the underlying interest trend

The rate payable may be "plus" or "minus" a set percentage. i.e. BoE plus 0.5% for a given time. At the end of the tracking period, the rate reverts to the lender's variable rate applicable at that time. You may have to pay an arrangement fee and there may be an early repayment charge during the tracker period.

Fixed Rate Mortgages

Terms vary from 1 - 25 years. This type of mortgage guarantees that your interest rate will not change during the fixed rate period. Generally the interest rate will be higher for longer term fixed rates.

Fixed rate mortgages tend to have an arrangement fee, you can expect to pay an early repayment charge if you redeem the mortgage before the end of the fixed term.

Once the fixed rate comes to an end you will revert to the lender's standard variable rate which could be higher or lower than the fixed rate you had, depending on the economic climate at the time.

Capped Rate Mortgages

Most capped rates tend to have a benefit period of 5 years but other terms are available.

During this period the interest rate cannot exceed the "capped rate" but if interest rates fall then you could benefit from a lower rate. Capped rate mortgages also tend to have an arrangement fee as well an early repayment charge. Capped rates are usually set higher than fixed rates so unless you believe rates are set to fall significantly you may be better choosing a fixed rate.

It is not uncommon for capped rates to have "collars" that put a minimum interest rate for the benefit period. At the end of the benefit period the mortgage will revert to the lenders standard variable rate.

100% Mortgages

These type of mortgages allow for a “no deposit” purchase.  They are often a combination of secured loan and unsecured loan.  Rates are typically higher but can allow a buyer to purchase whilst retaining their own capital for costs of moving, improvements etc.  They are normally available as variable or fixed rate.  Tie in periods are common and leaving the lender before the end of the deal may incur penalties.

Your home may be repossessed if you do not keep up repayments on your mortgage.