Capped Rate Mortgage

With a capped rate mortgage the interest rate is variable but there is a higher limit it can reach. A home owner has the peace of mind that their mortgage has a ‘ceiling’ and cannot go indefinitely higher. This period of capped interest is for a specified amount of time only, usually around 5 years.

It is possible to find some mortgages with a capped rate that last the length of the loan but they usually come with a ‘collar’ or lower limit that the rate cannot fall below of.

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Tracker rate

With a tracker rate the rate of interest you pay is tied to the base rate set by the bank of England.  Typically the tracker rate will be set a percentage point above the base rate of the Bank of England which is usually lower than the lenders standard variable rate but this depends on the lender.

Under this rate you usually pay less overall for your mortgage. Your rate will fall as low as the base rate falls and there is no limit, but it can also rise which makes budgeting difficult.

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Discounted rate mortgages

Discount mortgages offer a percentage cut in the lender’s standard rate for a set period of time. During that time, the rate will remain the same even if the standard rate fluctuates. The discount and its duration vary from deal to deal.

The discount usually last for 5 or 6 years and the rate introduced afterwards is usually a higher one than the standard rate. The discount rate is beneficial to first time buyers who have less disposable income and want more money when they start their mortgage at the expense of a higher rate later on.

You can re-mortgage after the discount has ended, however, most lenders will have punishments if you do that exact thing.

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Fixed Rate Mortgages

In a fixed rate mortgage the interest rate is set to the one at the time of you took your out your mortgage, letting you know exactly where you’ll stand from the start. Fixed rates can result in you paying less back than if the rate was variable but it also carries the risk that you could end up paying back more. Homes on a set budget benefit most from fixed rates because it provides stability and allows you can budget for in future.

When you start paying back the loan, your fixed rate will protect you from changes in the market but only for the agreed set amount of time after which the mortgage cost will revert to the lender’s standard variable rate.

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Offset/Current Account Mortgages

An offset mortgage is one that allows you to offset the repayments in lump sums with your savings. The idea was originally an Australian one that was eventually adopted by the U.K. in the late 1990s.

A current account mortgage combines both you mortgage loan and current account creating a dynamic loan that changes depending on your spending and saving habits. For example, if the home owner has £3,000 but a mortgage of £100,000 then their account will read as £97,000 overdrawn.

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Self-Certified Mortgages

In the modern economy it is becoming harder and harder for people to “prove” their income through traditional means. Many potential home owners earn the majority of their income through commissions or through multiple jobs. A self-certified mortgage allows you to vouch for your own income. You may need to have the reference of a landlord, accountant or previous bank statements. The downside of this type of mortgage is that the rate is usually much higher than the lender’s standard.

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Self-Build Mortgages

A self build mortgage is one you take out when you plan to build your own property. With this type of mortgage you benefit from borrowing less than the final value of your finished property. You will also benefit from paying less for stamp duty.

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Buy to let mortgages

Buy to let mortgages have seen a surge of activity as the lettings market has grown. Buy to let mortgages are special loans intended for people buying another property with the intention of letting it out. The mortgage usually has a higher interest rate and the deposit is a minimum of 20% – 25% of the property’s current market value.

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