Applying for a mortgage can be a huge financial responsibility, so making sure you choose a mortgage that suits your individual needs is a crucial part of the buying process. Understanding the different types of mortgages available to you, will help you make a confident and informed decision.
In this short blog, mortgage director, Mark Chadwick explains the different types of mortgages in more detail, and which one could be best for you.
Understanding your mortgage options
There are a large variety of mortgage deals available, but most can be grouped into two main types: variable rate and fixed rate.
Variable rate mortgage
Variable rate mortgages do not have a fixed interest rate. This means that as the economy changes, and interest rates go up and down, your monthly mortgage payments will rise or fall accordingly. While this flexibility might seem attractive, it can be a risky investment to carry out especially during turbulent markets.
There are two types of variable rate mortgages:
Tracker mortgage – These types of mortgages track the Bank of England base rate so if this increases then the rate on your mortgage and monthly payment will subsequently increase. These mortgages can be an attractive option when economic conditions are stable or improving. However, if the Bank of England enters a period of increasing the base rate, as it did throughout 2022 and 2023, then this will have a negative impact on your finances and a switch to a more stable fixed rate may be more appropriate.
Standard variable rate mortgage – Unlike tracker mortgages, standard variable rate mortgage mortgages don’t directly follow the Bank of England base rate. Instead, the interest rate is set by the lender and can change at their discretion. While lenders often base their decisions on the Bank of England’s rate, they are free to adjust rates independently. This can create more uncertainty for borrowers compared to tracker mortgages, as changes to your mortgage payments aren’t tied solely to official base rate movements.
Fixed rate mortgage
Fixed rate mortgages are the most popular option in the UK, especially for first-time buyers, as they offer financial stability. Unlike variable rate, with a fixed rate mortgage, your interest rate (and monthly payments) won’t change for a set term, usually 2, 3 or 5 years.
When you agree to a fixed-rate term with your lender, you lock in a guaranteed interest rate for a set period. This means your rate and monthly payments will stay the same, regardless of any changes in the wider interest rate market.
Fixed rate mortgages do have their benefits as it means that you always know how much you are going to pay over your set period, therefore you can plan for your future and ensure you are budgeting correctly. However, if we see a fall in interest rates, you are in a fixed rate, meaning you won’t benefit from the lower rates until your deal ends or you switch products.
What options do you have when your fixed rate mortgage comes to an end?
When your fixed rate mortgage term finishes, you have a few options. You can either renew your deal, if your lender offers a new fixed rate or switch to a different mortgage lender and product that better suits your current needs. If you don’t take any action you will automatically get switched to a standard variable rate mortgage.
Which option should you choose?
Ultimately, the right mortgage choice depends on your individual circumstances. At PM+M, our expert mortgage adviser, Mark Chadwick, is here to help. He’ll take the time to understand your personal situation, explain your options clearly, and offer tailored recommendations based on the most suitable mortgage products available to you. Whether you’re purchasing your first home or exploring new options, Mark will guide you through the entire process with ease, so you can make confident decisions aligned with your financial goals.
For further advice and to explore your options, please contact our mortgage director, Mark Chadwick, by clicking the button below.
PM&M Mortgages Ltd is an Appointed Representative of The Right Mortgage Ltd, which is authorised and regulated by the Financial Conduct Authority.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
