Your route to the ideal mortgage starts here. The following gives you an overview of the types of mortgage available to you. Which one you choose will depend on several factors, including your circumstances, lifestyle and, of course, the amount you’re thinking of borrowing.
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Variable rate
This is the simplest and most popular type of mortgage, chosen by millions of home owners. The interest you pay rises and falls according to changes in the Bank of England’s base rate. Each lender is free to set the rate they charge - usually around 2 to 4 per cent above the base rate.
Benefits
- Total flexibility. You can switch mortgage at any time without being penalised.
- Potential savings. If the Bank of England’s base rate falls, you could save on your monthly payments.
Things to bear in mind
- The Bank of England base rate can be unpredictable and can rise rapidly. So, you could see substantial increases in your monthly payments.
- If you need to budget your monthly expenditure carefully, a variable rate may not be for you.
- A fall in the base rate doesn’t always mean a fall in your lender’s rate and a reduction in your monthly payment.
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Fixed rate
Want the peace of mind of knowing what interest rate you’ll be paying over a period of time? Then fix it. You can usually guarantee your rate for between two and five years. So, you can budget for other expenses like furniture, carpets or home improvements.
Benefits
- Total control. You know exactly what you’ll be paying for up to 5 years.
- Potential savings. If the Bank of England’s base rate falls, you could save on your monthly payments.
Things to bear in mind
- If you want to pay off your mortgage early, you will almost certainly have to pay a penalty. This limits your flexibility to switch to a more competitive lender when your fixed rate term is up.
- The base rate might drop below your fixed rate, in which case you could be paying over the odds.
- You’ll normally have to pay an application fee.
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Discount
Are you willing to gamble on interest rates going down? If so, a Discount Mortgage could be for you. For a set period, your interest rate will be based on the base rate less a discount. If the base rate goes down, you’ll benefit a lot more than if it goes up.
Benefits
- Potential savings. If the base rate falls, you could save even more.
Things to bear in mind
- If you want to pay off your mortgage early, you will almost certainly have to pay a penalty.
- You’ll normally have to pay an application fee.
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Capped
With a capped mortgage you can set the maximum interest rate you will pay.
Benefits
- Flexibility with less risk. If the base rate falls, you benefit. If it rises, you are cushioned.
Things to bear in mind
- If you want to pay off your mortgage early, you will almost certainly have to pay a penalty.
- You’ll normally have to pay an application fee.
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Tracker
With a Tracker Mortgage you can make sure you’re getting the best deal. Rather than letting your lender set your interest rate, your rate will be tied to the base rate.
Benefits
- Potential savings. If the base rate falls you will benefit. Plus the rate you pay will usually be lower than the lender’s standard variable rate.
Things to bear in mind
- If you want to pay off your mortgage early, you will almost certainly have to pay a penalty.
- The Bank of England base rate can be unpredictable and can rise rapidly. So, you could see substantial increases in your monthly payments.
- If you need to budget your monthly expenditure carefully, a variable rate may not be for you.
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Cashback
Need some extra cash to help with setting up your home? If so, consider a Cashback Mortgage. You’ll receive a lump sum payment when you complete.
Benefits
- Useful cash, perhaps for furniture, carpets or solicitor’s fees? Or maybe as an investment to cover some of your monthly payments?
Things to bear in mind
- If you want to pay off your mortgage early, you will almost certainly have to pay a penalty.
- You’ll normally have to pay an application fee.
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