Mortgage Types

There are various types of mortgages available and to help you get your head around all the jargon, please find a brief description of mortgage types below.

• Variable Rate Mortgage
• Fixed Rate Mortgage
• Capped / Capped & Collared Mortgage
• Reduced / Discounted Rate Mortgage
• Flexible Mortgage

Variable Rate Mortgages - as the name suggests, the mortgage rate can vary. The interest can go up or down depending on the basic rate of interest being charged by the Bank of England - this is known as the Base Rate. If the Bank of England lowers the basic rate of interest then it is likely that most financial institutions will follow suit including mortgage providers. Likewise, if they increase the basic rate of interest then the variable rate is likely to increase also.

Fixed Rate Mortgages - the interest rate is fixed for a set number of years meaning that no mater what happens to the variable rate, the fixed interest rate will stay the same for the set period. If for example you opted for a three year fixed rate mortgage, during the full set period, the interest rate will not fluctuate. With a fixed rate mortgage you will always know what your mortgage payments or repayments will be every month for the full three years.

Capped Mortgages - for mortgage applicants who are unsure which way interest rates will go and do not want to be tied to a fixed rate mortgage. A capped mortgage which is also known as a collared mortgage is where the Lender will promise that the rate of interest will not fall below another rate of interest - e.g. 6% (this being the collared part) ... no matter what happens to the interest rates in general.

A capped mortgage is simply one where the interest rate will not rise above the cap, there is no lower limit.

Reduced / Discounted Mortgages - whereby the Lender will offer you a discount or reduction in their variable rate for a set period of time. For example, 0.5% over 3 years ... so if the base rate of interest was 7% then you would pay 6.5% - if the base rate changed to 30% then you would pay 29.5%.

Flexible Mortgages - a flexible mortgage is where you can make overpayments to your standard payment. For example, if your standard payment is £250 you could pay £500 per month. If you select to overpay, you have the option to have these payments back at a later date if required.

A flexible mortgage also offers you the option of having up to a 6 months payment break from making payments off your mortgage account - this does not mean that you don't have to make these payments at all but rather the payments will be added at the end to the term of the mortgage loan.