Overview of Mortgage Products

Most lenders offer you different ways of paying interest on your loan. The kind of mortgage you choose will depend on which one you feel most comfortable. There are seven main types:-

Variable Mortgages - Your payments go up and down as the mortgage rate changes. Rates are largely determined by the Bank Of England base rates and therefore, increase or decrease in line with the movements in these rates. Lenders set their own standard variable rates of interest. Choosing a variable rate mortgage means that the borrower has no control over what the monthly payments will be.

Base Rate Trackers - Similar to a variable mortgage, so your payments go up and down but directly in line with changes in the Bank of England base rate.

Fixed Rate Mortgages - The interest rate is guaranteed to stay at a set level for a stated period, regardless of any changes in the base rate. This gives the borrower a period of certainty about their mortgage payments. After the fixed rate period your interest rate will usually revert to the lender's standard variable rate.

Discounted Mortgages - In order to attract you as a customer, many lenders offer discount mortgages, which, as the name suggests, means you will receive a discount off the lenders standard variable rate stated for a period of time, for example 2% discount for 2 years. This has the effect of reducing your monthly payments for the period selected, after which your mortgage will revert to the lenders standard variable rate. It is important to note that discounted rates are not fixed, so there is no certainty of payment like fixed rates. Your monthly payments may increase or decrease in much the same way as a variable rate mortgage.

Cashback Mortgages - These are usually given as an incentive to new borrowers. The cash sum is usually paid on completion of the mortgage and the amount is sometimes a fixed amount or a percentage of the amount borrowed, for example 3% on a £ 80,000 mortgage is £ 2,400 cash back. Often, this can help borrowers with the expenses of buying your home. Your interest payments to the lender can be variable, fixed, discounted or capped.

Flexible Mortgages - Borrowers' circumstances can change much more rapidly and dramatically nowadays than was the case a few years ago. There is a growing demand for more flexibility in mortgages and some lenders are now offering many more options than before. Some schemes allow you to make over payments, take payment holidays, and run your mortgage like a current account where you can have your salary paid direct into your mortgage account. The benefit is that interest is often calculated daily and by making over payments can reduce the overall cost of your mortgage and enable you to repay the amount borrowed earlier than the term originally agreed with the lender.

Capped Rates - This is where the interest rate varies but does not go any higher than a set level, even if the base rate does go higher. After the set capped period your interest rate will usually revert to the lender's standard variable rate.