Which mortgage type is right for me?

Unfortunately, not every home buyer is lucky enough to have the cash to purchase a property outright. But with mortgage borrowing hitting an all-time high last year, it’s safe to say you don’t have to!

Taking out a mortgage is a popular, affordable and relatively stress-free way to get onto or climb up the property ladder.

There are thousands of mortgage deals on the market at the moment. But before you hit apply, it’s important to remember that it’s not low deposit mortgages that you should pay close attention to.  Ensuring that the mortgage you choose caters for you now and in the future is vital, and naturally, you’ll want to secure the very best deal for your circumstances.

Digging deeper into the types of mortgages on offer is a great starting point on your quest for a better mortgage deal. Let us talk you through the most common mortgage types so you can discover which is right for you.

Fixed rate

Fixed rate mortgages are particularly popular and for good reason. These deals ensure you pay a fixed amount every month for the duration of your deal, and this figure stays consistent, whatever the interest rates. You can fix your mortgage for up to 10 years to counter an uncertainty that you or the economy will face in the coming years. Most buyers however choose to fix it for five years.

Whilst you can look forward to paying a set amount each month, you’ll also have to foot the bill for upfront fees (such as product, arrangement or completion fees) and early repayment charges if you’re looking to move on before your deal has ended.

Standard variable rate

Standard variable rate (SVR) mortgages are usually the product you fall into after your current deal has ended and before you decide to move onto another fixed rate or tracker deal. Most lenders, don’t allow you to apply for SVR mortgages as a result.

Discount variable rate

Discount variable rate mortgages are the least popular option. According to research conducted by Which?, just 5% of those surveyed had a discount variable mortgage compared with the 60% who had a fixed rate mortgage.

With a discount variable rate mortgage, interest rates are dictated by the lender and are set below their standard variable rate. This rate can be increased or decreased at any time by the lender and by any amount.

Whilst the amount you pay from month-to-month throughout your term will never be any more than their SVR, your mortgage repayments are far from fixed as Money Saving Advice details:

“Although the base rate has been constant for more than three years, it could conceivably rise again in the near future and, if this happens, anybody tied into variable rate mortgage deals will see their monthly repayments rise. Equally, although variable rate mortgage holders will have been overjoyed to see their repayments plummet as the country grappled with economic difficulties, they have slowed down the rate at which they are paying off the money borrowed on their house.”

Tracker

As the name suggests, a tracker mortgage ‘tracks’ the Bank of England’s base rate (some lenders follow the London Inter-Bank Offered Rate or Libor instead), using this external rate combined with a set percentage fee to set the interest rate of the mortgage.

The Bank of England base rate rises and falls over time. It can fluctuate as many as eight times in one year, which makes tracker mortgage repayments difficult to follow. If the base rate rises so too will your monthly mortgage repayments. Tracker mortgage holders can however look forward to reduced repayments if the base rate falls.

The uncertainty of your monthly mortgage repayments may deter many buyers from choosing tracker mortgages. Yet with the base rate remaining on the low side for several years, even throughout the pandemic, a tracker mortgage with a term of two to five years is a great option.

Most tracker mortgages aren’t restricted by early repayment charges either, which is excellent news if you want to remortgage or move properties in the short term.

Unsure which mortgage type is right for you? Call on our experts today for independent mortgage advice that saves you time and money.

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