{"id":16,"date":"2021-08-03T11:31:47","date_gmt":"2021-08-03T10:31:47","guid":{"rendered":"https:\/\/www.affalo.co.uk\/blog\/?p=16"},"modified":"2022-08-22T12:45:52","modified_gmt":"2022-08-22T12:45:52","slug":"which-type-of-mortgage-is-right-for-me-mortgage-types-simplified","status":"publish","type":"post","link":"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/","title":{"rendered":"Which type of mortgage is right for me? Mortgage types, simplified"},"content":{"rendered":"\n<hr class=\"wp-block-separator is-style-wide\"\/>\n\n\n\n<p>In our last blog we talked about mortgages: What they are, how they work and why it\u2019s hard to get one. What you might not realise as you set out on your journey to getting a mortgage is how many types of mortgage there are. Mortgages come with a variety of terms that have their own upsides and downsides. We\u2019ve written this article to help you get to grips with everything you need to know.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_79_2 counter-flat ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">What&#039;s Included?<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/#Mortgage_types_An_overview\" >Mortgage types: An overview<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/#Fixed-rate_mortgages\" >Fixed-rate mortgages<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/#Standard_variable_rate_mortgages\" >Standard variable rate mortgages<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/#Repayment_mortgages_vs_interest-only_mortgages\" >Repayment mortgages vs. interest-only mortgages<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/#Tracker_mortgages\" >Tracker mortgages<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/#Discount_rate_mortgages\" >Discount rate mortgages<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/#Capped_mortgages\" >Capped mortgages<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/#Offset_mortgages\" >Offset mortgages<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/#LTV_ratios\" >LTV ratios<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/#Conclusion\" >Conclusion<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.check.co.uk\/blog\/mortgages\/which-type-of-mortgage-is-right-for-me-mortgage-types-simplified\/#Credit-Score_offers_two_fabulous_solutions\" >Credit-Score offers two fabulous solutions<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Mortgage_types_An_overview\"><\/span><strong>Mortgage types: An overview<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>What type of mortgage is right for you depends heavily on your personal financial circumstances. You may wish to speak to a financial advisor or a brokerage firm to work out the best type of mortgage for you. However, this blog will give you an understanding of:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Fixed rate mortgages<\/li><li>Standard variable rate mortgages<\/li><li>Interest-only mortgages<\/li><li>Repayment mortgages<\/li><li>Tracker mortgages<\/li><li>Discount rate mortgages<\/li><li>Capped mortgages<\/li><li>Offset mortgages<\/li><\/ul>\n\n\n\n<p>We\u2019ll also be discussing various loan-to-value ratios, including 100% mortgages, and the risks and benefits thereof.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Fixed-rate_mortgages\"><\/span><strong>Fixed-rate mortgages<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Fixed-rate mortgages have a fixed rate of interest for a period of time after taking out the mortgage. Even if your lender\u2019s interest rates change, you will pay the same amount for a certain period while paying back your mortgage.<\/p>\n\n\n\n<p>Generally, these fixed rates stick around for between two and five years. This gives you the ability to budget for a set period so you aren\u2019t thrown in at the deep end. For this reason, many first-time buyers prefer fixed-rate mortgages.<\/p>\n\n\n\n<p>Once this period is up, the lender can then begin charging borrowers at a different, usually higher, rate. Any reputable lender will warn borrowers of this change so they can be ready.<\/p>\n\n\n\n<p>As with all mortgages, fixed-rate mortgages are not without downsides. You need to be sure you want to live in the same place for at least two to five years. That means no remortgaging or moving house. The lender will charge you extra fees if you overpay or pay off your mortgage in this time. Additionally, it&#8217;s worth bearing in mind that interest rates don\u2019t just go up, but down. If interest rates improve, you&#8217;re still paying the same rate.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Standard_variable_rate_mortgages\"><\/span><strong>Standard variable rate mortgages<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Standard variable rate, or SVR mortgages do not have a fixed term. The interest on an SVR is always going to change. This makes them a more risky mortgage to take on, though they aren\u2019t without advantages.<\/p>\n\n\n\n<p>An SVR mortgage tends to have lower arrangement fees than a fixed-rate mortgage, because SVRs of course make more money for the bank. You can also pay as much as you like on top of your standard rate or even pay it off. You won\u2019t get charged any fees for doing so. And if interest rates drop, then you will feel the benefit as you pay less interest.<\/p>\n\n\n\n<p>However, this is not without its stumbling blocks. Because interest rates can be unpredictable, budgeting can be very difficult with an SVR. If interest rates skyrocket, which happens when there is a rise in demand for money and credit, you might even find you struggle to keep up with payments. This could jeopardise your mortgage agreement.<\/p>\n\n\n\n<p>Additionally, SVRs don\u2019t offer very competitive rates. It can be tempting to be lured in by low arrangement fees and the possibility of low interest rates. However, you might want to think twice before going for an SVR.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Repayment_mortgages_vs_interest-only_mortgages\"><\/span><strong>Repayment mortgages vs. interest-only mortgages<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Most mortgages are repayment mortgages. This means that every month, you pay back a portion of the interest and and the loan. By the end of your term you will have paid everything off, as long as you don\u2019t miss any payments.<\/p>\n\n\n\n<p>With an interest-only mortgage you only pay off the interest on your mortgage every month. After paying off the interest, you must then pay off the original value of the loan. This is helpful, because it allows you to pay off less every month, assuming that by the end of that term you will have the means to begin paying off the loan value.<\/p>\n\n\n\n<p>Interest-only mortgages were very popular just prior to the 2008 financial crisis, which we&#8217;ve <a href=\"https:\/\/www.check.co.uk\/blog\/everything-you-ever-wanted-to-know-about-mortgages-but-were-afraid-to-ask\/\" target=\"_blank\" rel=\"noreferrer noopener\">discussed before<\/a>. However, after the crisis, companies became more reluctant to give out interest-only mortgages. <a href=\"https:\/\/www.check.co.uk\/blog\/everything-you-ever-wanted-to-know-about-mortgages-but-were-afraid-to-ask\/\" target=\"_blank\" rel=\"noreferrer noopener\">This is for the same reason as the problem with subprime lending<\/a>. If the company cannot guarantee borrowers will not pay back the money they lend out, that puts them in a dangerous position. It not only puts their business in jeopardy. It gives them liability for any knock-on effect on the economy at large.<\/p>\n\n\n\n<p>For this reason, it is extremely hard as a first-time buyer to get an interest-only mortgage. For a home you intend to live in, at least. Interest-only mortgages are generally available only to buy-to-let borrowers, who can guarantee to pay back the full value of the mortgage.<\/p>\n\n\n\n<p>If you cannot repay what you owe at the end of your interest-only term, you will be forced to either take out another mortgage, or sell your home to pay it off. In either case, this might not look good on your financial history. Again, you may want to speak to a financial advisor or broker before attempting to get this type of mortgage.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Tracker_mortgages\"><\/span><strong>Tracker mortgages<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Tracker mortgages are a specific type of variable-rate mortgage. They track with the Bank of England\u2019s base interest rate rather than interest rates set arbitrarily by the lender. This lasts for up to ten years.<\/p>\n\n\n\n<p>This does not mean that they match the Bank of England\u2019s base rate. They simply follow the Bank of England\u2019s interest rate. So if the Bank of England\u2019s base rate drops by 2% over a number of years, so will your mortgage\u2019s interest rate.<\/p>\n\n\n\n<p>Some lenders set what\u2019s called a \u201ccollar\u201d to a tracker mortgage. This means your interest rate can never go below a certain amount.<\/p>\n\n\n\n<p>Tracker mortgages are useful because they tend to be cheaper than other variable rate mortgages due to following the base rate rather than an SVR. Some even have an \u201cejector seat\u201d option. This lets you switch to a fixed-rate mortgage if the rates change too dramatically.<\/p>\n\n\n\n<p>However, tracker mortgages are not without their pitfalls. While the base rate has been falling for years since the 2008 financial crisis, the financial impact of the COVID-19 pandemic has thrown that into question. If a recession happens, it may cause the base rate to go up again. This means you would be paying more than you would be paying five years ago.<\/p>\n\n\n\n<p>Additionally, and unlike an SVR, you can\u2019t pay off your mortgage early without incurring some fees from the lender. You also might not be able to take advantage of low rates like with an SVR. This is because the collar rate will always ensure you pay a certain amount, meaning you don\u2019t get the full benefit of an SVR.<\/p>\n\n\n\n<p>If you think a tracker mortgage is for you, it\u2019s worth bearing in mind that the economy is unpredictable and fickle. What seems like a good deal now might not seem like a good deal down the road!<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Discount_rate_mortgages\"><\/span><strong>Discount rate mortgages<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Similar to tracker mortgages, discount mortgages have a rate set lower than the standard variable rate used by your lender. They offer many similar benefits to tracker mortgages, but are not tied to an external rate.<\/p>\n\n\n\n<p>Discount rate mortgages are useful if you want to be paying a bit less off your mortgage for a few years. They also allow you to make early repayments without incurring huge fees.<\/p>\n\n\n\n<p>However, many of the same problems that apply to SVRs also apply to discount rate mortgages. If your lender\u2019s SVR goes up, so will your repayments, and so once again, it might not be easy to budget every month.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Capped_mortgages\"><\/span><strong>Capped mortgages<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Capped mortgages are another special type of variable-rate mortgage. With a capped mortgage, the amount of interest you can be charged is capped for up to five years. This gives some of the benefits of a fixed-rate mortgage while offering some flexibility.<\/p>\n\n\n\n<p>A capped mortgage makes it easier to budget, because you know that your mortgage repayments can never go over a certain amount for the period that the cap applies. This means you can stay calm in case of any unexpected expenses.<\/p>\n\n\n\n<p>However, as ever, there are downsides. A capped mortgage can still rise, unlike a fixed-rate mortgage, even with the cap. Rarely will your lender start charging you the capped limit right away. If you\u2019re not sure you\u2019d be able to pay that much, a capped mortgage might not be right for you.<\/p>\n\n\n\n<p>Capped mortgage fees can often be higher than other mortgage fees, simply so the lender can break even on the money they are losing from the cap. This, of course, also has its downsides. If you end the deal early it might cost you more than with other mortgage types.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Offset_mortgages\"><\/span><strong>Offset mortgages<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>An offset mortgage is quite a bit different to the others we\u2019ve talked about so far. It\u2019s tied to your savings account. The amount you have saved is taken away from the loan amount on which you are paying interest, bringing down your monthly payments.<\/p>\n\n\n\n<p>Offset mortgages mean you cease to earn interest on your savings. However, they save you money in the long-term by lowering what you pay back to the lender. Of course, saving accounts often pay ridiculously low amounts of interest, so you might not even notice it!<\/p>\n\n\n\n<p>You can access your savings account whenever you need it. Nevertheless, bear in mind that any cash you withdraw from an offset account raises your mortgage repayment. Therefore, there\u2019s more incentive to save.<\/p>\n\n\n\n<p>You can get offset mortgages with fixed, SVR, tracker and discounted rates. Consider the offset mortgage a different beast entirely to your bog-standard repayment mortgage.<\/p>\n\n\n\n<p>Offset mortgages work by effectively converting your savings into liquid funds. The lender can then use that as part of their business operation. As a thank you, the lender gives you lower repayment rates.<\/p>\n\n\n\n<p>We\u2019re sure you know the drill by now. Offset mortgages, of course, have some caveats.<\/p>\n\n\n\n<p>Offset mortgages can be quite a bit more expensive than others. You might want to consider one if you\u2019re sitting on substantial savings. Additionally, they give you a lower loan-to-value ratio vs. other mortgages. This means that your deposit will likely be quite a bit bigger than other, more conventional products.<\/p>\n\n\n\n<p>Offset mortgages are ideal if you\u2019re an older first-time buyer with quite a bit of savings to put to use, but as ever, speak to a financial advisor or broker before rushing into anything!<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"LTV_ratios\"><\/span><strong>LTV ratios<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The loan-to-value ratio, or LTV, is what every lender uses to determine the risk they\u2019re taking on by lending to you. Lenders use the LTV to calculate your deposit. This essentially means the amount borrowed divided by the estimated value of the property.<\/p>\n\n\n\n<p>Let\u2019s say, for example, you want to buy a \u00a3250,000 house with an 85% LTV mortgage. You will need to provide \u00a337,500 as your deposit.<\/p>\n\n\n\n<p>Some lenders will offer 95% or 100% LTV mortgages. These cover the full cost of your deposit, but these are few and far between because the risk is so high. If you do find and manage to get one, your repayments are likely to be much higher. This costs you more in the long run, so it might be better to save for a deposit.<\/p>\n\n\n\n<p>Look around at houses in your area. Find out how much you\u2019re expecting to be borrowing and how much deposit you need to be saving for.<\/p>\n\n\n\n<p>Of course, with Credit-Score, all this is done for you, letting you track your progress towards applying for a mortgage. <a href=\"https:\/\/credit-score.com\/register\" target=\"_blank\" rel=\"noreferrer noopener\">Sign up for an account today to get started!<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>We hope you\u2019ve got something out of this deep dive into the world of mortgages. There\u2019s a mortgage type that\u2019s right for every set of circumstances, but only you can know what\u2019s best for you. If you are unsure of anything, be sure to get in touch with an advisor who can help work out your situation and what is best for you. And consider signing up for Credit-Score today for help getting on track for a mortgage!<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Credit-Score_offers_two_fabulous_solutions\"><\/span>Credit-Score offers two fabulous solutions<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>If you\u2019re preparing to take a mortgage, never apply until you\u2019ve tried our unique and&nbsp;<a href=\"https:\/\/home.credit-score.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">FREE Credit-Score Home app.<\/a>&nbsp;Our smart technology will tell you what you need to fix so you avoid rejection. The app predicts when you will be able to buy, for how much and tracks your month-by-month progress to mortgage success. We\u2019ve even added your own mortgage broker, so you get the best deals available.<\/p>\n\n\n\n<p>More focused on your credit rating? Well, get started for free with&nbsp;<a href=\"https:\/\/www.check.co.uk\/register\" target=\"_blank\" rel=\"noreferrer noopener\">Credit-Score\u2019s 24- Factor Credit Check<\/a>&nbsp;to truly help you improve your creditworthiness and how lenders view you. (Remember: lenders don\u2019t use your credit score! We\u2019ll show you what lenders look for and how to get your credit report in the best shape possible).<\/p>\n","protected":false},"excerpt":{"rendered":"If you&#8217;re a first-time buyer, all the different types of mortgage can be confusing. In this post we aim to demystify mortgage types.\n","protected":false},"author":19,"featured_media":4275,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[270],"tags":[535,506,507,536,537,538,539,477,540,541,529,542,543,544,545,210,546,547,523,548,549,550,551,552,553,554,555,556,557,534],"class_list":{"0":"post-16","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-mortgages","8":"tag-100-mortgage","9":"tag-buying-a-home","10":"tag-buying-a-home-for-the-first-time","11":"tag-capped-mortgage","12":"tag-capped-mortgages","13":"tag-discount-rate-mortgage","14":"tag-discount-rate-mortgages","15":"tag-first-time-buyer","16":"tag-fixed-rate-mortgage","17":"tag-fixed-rate-mortgages","18":"tag-how-do-mortgages-work","19":"tag-interest-only-mortgage","20":"tag-interest-only-mortgages","21":"tag-ltv","22":"tag-ltv-ratios","23":"tag-mor","24":"tag-mortgage-types","25":"tag-mortgage-uk","26":"tag-mortgages","27":"tag-offset-mortgage","28":"tag-offset-mortgages","29":"tag-repayment-mortgage","30":"tag-repayment-mortgages","31":"tag-standard-variable-rate-mortgage","32":"tag-standard-variable-rate-mortgages","33":"tag-svr","34":"tag-svr-mortgage","35":"tag-tracker-mortgage","36":"tag-tracker-mortgages","37":"tag-what-is-a-mortgage"},"acf":[],"featured_image_src":"https:\/\/www.check.co.uk\/blog\/wp-content\/uploads\/2019\/10\/photo-1516156008625-3a9d6067fab5.jpg","author_info":{"display_name":"Robert Edwards","author_link":"https:\/\/www.check.co.uk\/blog\/author\/conor-mullinsaffalo-co-uk\/"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Mortgage types, simplified for first-time buyers. | Credit-Score<\/title>\n<meta name=\"description\" content=\"If you&#039;re a first-time buyer, all the different types of mortgage can be confusing. 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