Types of Mortgage Products
There are 1000s of mortgage products on the market in a number of different variations. We’ve explained below the types of categories these 1000s of products fall into.
Fixed rate
- A borrower is able to ‘lock’ into a fixed interest payment for a specific term (usually 2-5 years).
- At the end of the fixed rate period, the rate will revert back to the lender’s variable rate at that time.
- Allows the borrower to budget for a set period of time.
- There tends to be early repayment charges during the fixed rate period if the borrower wishes to repay their mortgage early.
Standard Variable rate
- This rate is normally set by the mortgage lender
- The interest rate is variable, which means it will go up and down without limits.
- A disadvantage of the variable rate is that you can’t predict what your monthly payment will be.
- There’s no protection against increases in interest rates.
Discount Mortgages
- These mortgage products are variable rates, with a initial period discounted from the lenders standard variable rate
- The interest rate is variable, which means it will go up and down without limits.
- A disadvantage of the variable rate is that you can’t predict what your monthly payment will be.
- There’s no protection against increases in interest rates.
Tracker Rate
- Tracker rates are similar to variable mortgage rates; however these are directly connected to the Bank of England base rate. For example a tracker could be 1.50% the bank of england base rate, if the base rate was 2.00% this would provide a payable rate of 3.50%.
- The interest rate is variable, which means it will go up and down without limits.
- A disadvantage of the tracker rate is that you can’t predict what your monthly payment will be.
- There’s no protection against increases in interest rates.
Capped & Collar
- This is a variable rate mortgage; however this product will have a maximum ‘cap’ that the rate cannot exceed. This provides some layer of protection to interest rates rising.
- These products can also have a lower-limit called a ‘collar’ which means if the rates were to fall you still pay a minimum rate of interest set within the product
- Often these rates have a tie-in period and the rate can fluctuate between the cap and collar whilst within the tie-in period