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Buying a house can be difficult enough without adding the confusion which can be easily caused by the range of different mortgages on offer. If you’re left feeling dizzy trying to work out what each mortgage type offers, you’re not alone.

There are a few main types of mortgage available across banks and building societies, each with its own perks and drawbacks.

Choosing a mortgage from those on offer is a decision which should be based entirely upon each individual circumstance. It’s always recommended that you talk to a mortgage broker before choosing, but it always helps to know the basics beforehand.

Fixed Rate

The fixed rate mortgage is one of the most popular available for many reasons. By having a fixed rate, your payments are at a fixed rate for an agreed amount of time (usually between two and five years), which means you’ll know exactly what you’re paying each month.

One of the biggest drawbacks of this type of mortgage is that you won’t benefit if interest rates drop, meaning it can be quite an expensive form of mortgage. Similarly, you may experience early repayment charges which can be bothersome to some.

Editor of Moneyfacts.co.uk Sylvia Waycot has said: “Five year fixed rate mortgages have traditionally been a bit too expensive to be the first choice for most of us. However, thanks to lenders enjoying cheap loans from the government, this is changing.”

Lenders are now offering longer term 10-year fixed rate mortgages with low interest rates – the Yorkshire Building Society is leading the way in this offer with a price of 3.99% and is available to those with 25% deposit or the equivalent in terms of a re-mortgage.

“Borrowers have been showing an interest in longer term fixed rate mortgages, which is why the time was right for us to launched the 10-year fixed-rate mortgage which offers ‘borrowers long-term peace of mind. With so much uncertainty about the economy at home and abroad, borrowers tend to choose a fixed rate mortgage to make it easier to budget month to month.

“Our valuable mortgage guides help first time buyers, people moving home or people wanting to change mortgage provider. Fixing for the longer term is tempting when our current mortgage range is so competitive on the products that suit your individual needs, and there is an expectation that the Bank of England Base Rate could start to rise” recently commented a spokesperson from Yorkshire Building Society

Variable Rate

Perhaps most different to the fixed rate mortgage, the variable rate can see the interest change at any point. This means your payments can change at any point in correlation to interest rates and it’s entirely up to your lenders discretion how much or little you pay per month.

There are different types of variable rates so make sure you shop around before agreeing to any particular one. It may seem like a scary way to set your mortgage, but you can usually change your lender or make early repayments entirely without charge.

It may be cheaper than any other deal, but it could also work out much more expensively. Should the interest rates change dramatically, you need to know whether or not you could cover your repayments.

Tracker

Tracker mortgages move in line with the Bank of England’s base line interest rate. This means your mortgage interest rate will rise or lower exactly as the Banks does. For example, if the base rate goes up by 1%, your mortgage will go up the same amount.

The obvious advantage of this is that if the base rate goes down, your mortgage repayments will go down too, which can be brilliant. On the down side, you could also be stuck with a really high rate which you may not be able to pay back.

 

If you have a mortgage, what kind is it? Any words of wisdom you can offer here?