Three Mortgage Types

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06th August 2018

When you’re looking for a mortgage, it can be difficult to know exactly what you’re signing on for. Sure, you understand the basics of it, but when it comes to all the technical jargon, how sure are you? Do you know the differences between fixed, tracker and variable rates mortgages? No? Good…

Here is the place you need to be in order to learn all about it. In this post, we’ll be covering 3 of the different types of mortgages. These are the most common mortgages offered in the UK, so we think it’s only right we outline what they are and what they mean. Learn all about them, just below:

The Three Types

Today, we’re talking about the following mortgage types:

  1. Fixed
  2. Tracker
  3. Variable Rates

Let’s start with number 1, because that’s how lists and numbers work…

Fixed Mortgages

The name is a dead giveaway, but these types of mortgages have fixed rates. Throughout the lifetime of the loan (mortgage), the rate is fixed which means you won’t pay more and you’ll know what the mortgage will cost. When we say lifetime of the loan, we mean throughout the incentive period, as most mortgages change after 2-10 years and return to variable rates mortgages – but we’ll get to that. The benefits of this type of mortgage mean you’ll know exactly what you’re paying, month on month.

The disadvantages? Well, there are some… If the Bank of England’s national interest rates fall, you won’t be able to reap the benefits, paying back the same amount every month. With other mortgages, interest rates falling means you pay less. There’s also no way to exit the mortgage early, at least until the incentive period ends – that could be 10 years…

Tracker Mortgages

Tracked mortgages track the national interest rates – the names are very literal… With a mortgage that follows interest rates, it means you can either pay back more or less each month, depending on the national interest rate set by the Bank of England. It’s worth noting that they don’t have the same base rate, which means they’re usually a few percent or so above the Bank of England’s – the mortgage rate simply moves with the base rate.

Due to the uncertainty of interest rates, these mortgages can either work out better or worse than fixed ones. It’s dependent on the economic climate. At the rare times interest rates drop, you won’t have to pay back as much, on top of your borrowed amount. However, when they plummet… you get the idea. Like the fixed mortgages, this tracker rate usually is part of an incentive period, and when it ends, you’ll go to a variable rates mortgage. It is dependent on the lender, because some tracked mortgages can be for the whole lifetime of the mortgage, whereas some may last 2 years – so it’s worth checking.

Variable Rates Mortgages

We’ve mentioned it a few times, but now we’re going to talk about it! Pretty much every mortgage provider offers these, as it’s the standard when an incentive period ends. It means they can move the interest rates when they like (but they usually follow when the Bank of England’s interest rates change). Whilst it can be good, when interest rates are lowered, you’ll pay back more if they rise. Unlike fixed and tracker, there is no early repayment charge, which means you can remortgage these types of mortgages or pay off a large chunk.

That’s all you need to know! When it comes to mortgages, it’s about finding what is right for you. And, as these incentive periods eventually end, you’ll be able to remortgage your home and switch to a cheaper one.

To find out what mortgage is right for you, speak to a member of the Zing team – to find out what we could offer you!

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