exploring the different types of mortgages

Are you looking for a brief overview of the different types of mortgages? Then you’re in the right place. We’ll guide you through the various options to help you understand more about the pros and cons of each.

Before diving into the various mortgage types, it’s important to understand the potential effect of the Bank of England (BoE) Base Rate on mortgage rates. The base rate is set by the Bank of England’s Monetary Policy Committee every six to seven weeks, and you’ll often find that when the BoE rate changes, the cost of borrowing changes too.

When pricing mortgage rates, lenders are influenced by what the base rate is doing, so it’s important to bear this in mind when looking into what mortgage may be the most suitable for you.

fixed-rate mortgages

Let's start with fixed-rate mortgages. They typically run for two, three or five years, with some lenders even offering longer periods. On a fixed-rate mortgage, your monthly mortgage payments stay the same throughout this time, meaning BoE Base Rate changes won't affect you.

In basic terms, a fixed-rate mortgage can be seen as your safety net against market fluctuations. But bear in mind, if the BoE decreases its rates, you won't benefit from the lower monthly payments. And if you decide to end your mortgage deal early, you might face early repayment charges.

variable rate mortgages:

• tracker mortgages - Moving on to variable rate mortgages. One type of variable mortgage is known as a tracker mortgage, which tracks the base rate. This means that your monthly payments could change in line with changes to the Bank of England Base Rate. So, if the current base rate is 5.25% and the lender adds an extra 1% interest, your payments would be at 6.25%. The advantage? If rates go down, your monthly mortgage payments follow. But remember, if rates climb, your payments will too.