Types of Mortgages

Unfortunately in recent years mortgages have become increasingly complex and wrapped up in technical jargon. Borrowers now need to consider at least two things, the type of mortgage loan they want and how they are going to repay it. Have a look at your options below.

Types Of Mortgages: Here is the list of different types of mortgages that are available in UK markets.

Variable Rate Mortgage

Rates on these loans fluctuate in line with general interest rates but because they are at the lenders discretion they dont necessarily move as far, or as fast. Discounts are usually offered to new borrowers in the early years.

Tracker Mortgage

Rates on tracker loans are normally linked directly to movements in the Bank of England base rate. The link may be for a limited period rather than the life of the mortgage.

Cashback Mortgage

When these loans are granted, cash payments are given to borrowers to spend how they like. They are typically between 6 per cent and 8 per cent of the loan.

Fixed Rate Mortgage

Rates of interest on these loans are guaranteed not to change for a specified period, typically the first three to five years of the mortgage.

Capped Rate Mortgage

With this type of loan, the interest rate is guaranteed not to exceed a fixed level during the capped-rate period. The advantage is that it can go down if rates are cut.

Repayment Methods

Repayment Mortgage

Also known as capital and interest mortgages because part of the monthly payments gradually pays off the loan while the remainder covers the interest on the amount outstanding.

Offset Mortgage

These loans are taken out in conjunction with a current account or savings account. Regular mortgage repayments are required but at the same time the cash in the other accounts helps to reduce the loan, thereby saving interest. This can help to speed up repayment of the mortgage.

Interest Only Mortgage

As its name implies, the borrower pays the interest only on the loan during the mortgage term so the capital remains outstanding. Payments may also be made into a savings scheme, such as an Individual Savings Account, to repay the capital at the end of the term. Sometimes the loan is repaid out of the sale proceeds of the property.

Endowment Mortgage

This is where an interest-only loan is combined with a life assurance with-profits policy intended to pay out a sufficient sum to clear the mortgage at the end of the term. But endowment policy payouts are not guaranteed and many are currently expected to produce shortfalls.

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