Mortgage Types
With so many mortgages currently available, it helps to have a full understanding of each mortgage type. In this section we explain the different types.
Discount Mortgages:
Discount mortgages are mortgages that track the lender’s variable rate with a discount, i.e. if their variable rate is 7.25% and they are offering a discount of 2% for 2 years, then the actual rate of interest that you will be charged will be 5.25%, however if their variable rate decreases or increases by 0.25% then the rate you will be charged would be 5.00% - 5.50% depending if it has gone down or up.
Fixed Rate Mortgages:
Fixed rates are what they say, the rate is fixed for a period of time and there will be no changes in your monthly payment, providing you make payments on time.
If you opt for a fixed rate mortgage over 3 years, your monthly payments will not change irrespective of what happens to interest rates, i.e. if they go up or down, your rate and monthly payment will stay the same.
Tracker Mortgages:
Tracker mortgages track either the Bank of England base rate (BBR) rate or the London Inter Banking Orbital Rate (LIBOR). It works in a similar way to discount mortgages, but rather than track the lenders variable rate, it tracks the BBR or LIBOR rate, and your payments can go up or down depending on whether the Bank of England decides to raise interest rates, lower interest rates or leave them as they are.
Capped Rate Mortgages:
Capped rate, with this type of mortgage, the rate that you pay is variable to a maximum limit set at the outset for a fixed period (it can go up and down).