Welcome to our Mortgage page at Mortgages UK.

Repayment Mortage

A repayment mortgage is the most common type of mortgage in the UK, and guarantees that the mortgage is paid off in full at the end of the mortgage term (the duration of the mortgage).

Each month you repay part of the capital (the amount you borrowed) and some interest. The size of the mortgage decreases steadily so that the amount of interest payable also decreases. As time goes by, the monthly repayment consists of an increasing amount of capital and a decreasing amount of interest.

At the end of the mortgage term you will have nothing more to pay. If you want to be certain of paying off your mortgage at the end of the term, then this is the type of mortgage for you.

A mortgage term for a repayment mortgage is 25 years.

A repayment mortgage does not rely on the performance of an investment to pay off the mortgage. As long as you always meet the monthly mortgage payments, your mortgage will be fully paid off by the end of the mortgage term.

Interest Only Mortgage

Your monthly payments are only for the interest on the capital borrowed, none of the capital itself is paid off. You then have to set up a suitable repayment vehicle, such as an endowment policy or ISA, to repay the mortgage loan at the end of the term.

As your monthly payments are only for the interest on the loan, they are lower than they would be for a repayment mortgage.

With an interest only mortgage, there is no guarantee that the mortgage will be paid off at the end of the term, it depends on the investment performance of your repayment vehicle. You may have to sell your house at the end of the term to repay the mortgage loan.

With an interest-only mortgage, your repayments go towards:
- Interest on the loan amount.
- A contribution towards an investment plan intended to pay off the mortgage at the end of the mortgage term.
- Life insurance in case you die before the end of the mortgage term.

An interest only mortgage is riskier than a repayment mortgage because the investment plan might not grow enough to pay off the loan in full. However, there is also the possibility that the investment plan performs better than expected and at the end of the term you can pay off the loan and be left with a lump sum, or you are able to pay the loan off earlier than expected.

Fixed Rate Mortgage

The interest rate is fixed for a given period of time, usually between two and five years. At the end of the fixed rate period the mortgage then becomes a standard variable rate mortgage. This has been a very popular option amongst mortgage customers.

Careful consideration should be given to how long the fixed period of your mortgage lasts, as you do not want to be caught out by so-called "payment shock", an unfavourable interest rate situation when the mortgage changes to the standard variable rate.

Fixed rate mortgages are attractive when interest rates are currently low and likely to rise, as they allow you to lock-in that low interest rate.

Fixed rate mortgages for longer periods, e.g. 15 or 20 years, or even the entire length of a 25 year mortgage term, are less common but can be found. Indeed, a 25 year fixed rate mortgage could be regarded as a niche mortgage product, with only a few mortgage providers offering them.

Standard Variable Rate Mortgage

The interest you pay on a Standard Variable Rate (SVR) Mortgage is linked to the Bank of England base rate. Each mortgage lender sets its own Standard Variable Rate, which is usually 1-2% above the Bank of England's base rate. As the name implies, the rate is variable, fluctuating with the Bank of England base rate.

When the Bank of England puts its base rate up, your SVR mortgage rate will usually go up shortly afterwards to reflect this, but any change in the SVR is at the discretion of the mortgage lender.

Comparing the Standard Variable Rates offered by lenders can give you a good idea of how good their deals are.

Discounted Rate Mortgage

Similar to a Standard Variable Rate mortgage except that the lender offers a small discount from their Standard Variable Rate for a fixed period. For example, if the Standard Variable Rate (SVR) was 6%, then you might be given a 1% discount from that at 5%. Note if the SVR rises, e.g. to 7%, then your discounted rate mortgage would also rise with it, i.e. to 6%.

Capped Rate Mortgage

Similar to a Standard Variable Rate mortgage except that there is an agreed maximum rate (or cap) which your interest rate cannot go above. The cap usually lasts for a set period of one to five years, after which the mortgage reverts to a variable rate, although you can find mortgages with a cap that lasts for the entire loan period. The cap gives the borrower protection against rising interest rates. Note that some Capped Rate Mortgages also have a collar below which the mortgage rate cannot fall.

Tracker Mortgage

A tracker mortgage gets its name from the fact that it will exactly track movements in a particular variable, most commonly for UK tracker mortgages, the Bank of England Base Rate. The interest rate on a tracker mortgage is above, yet linked to, the Bank of England Base Rate, e.g. Base Rate + 0.25%, Any movement in the Base Rate is always matched exactly by the tracker rate, so if the Base Rate goes up by 1% , then the tracker mortgage rate goes up by 1% too. The tracker mortgage is always "tracking" the Base Rate movements whilst always remaining a given amount (e.g. 0.25%) above Base Rate itself.

A Tracker Mortgage is different from a Standard Variable Rate mortgage because of the way changes in the underlying variable, normally the Bank of England Base Rate, are dealt with. A Tracker Mortgage is linked to the underlying variable and will therefore always immediately reflect changes in the underlying variable (Base Rate), whereas a Standard Variable Rate Mortgage will only reflect changes in the underlying variable (Base Rate) if the mortgage lender chooses to.

A Tracker Mortgage usually only lasts for a set period of time, after which it reverts to being a Standard Variable Rate Mortgage.

Self-Certification Mortgage

This type of mortgage is used where it's difficult to prove you have regular income, so you certify your earnings yourself.

Offset Mortgage

An offset mortgage is one in which a savings balance you have with your mortgage provider is taken off your outstanding mortgage balance before mortgage interest is calculated.

This means you don't earn any interest on your savings amount, but at the same time you aren't charged any interest for the same amount of your mortgage. Hence your savings are offsetting your mortgage balance.

Some offset mortgages also allow the balance on your current account to be taken off your mortgage.

The offset facility can help you to either reduce your monthly mortgage payments or to pay off your mortgage early.

Your savings account remains separate from your mortgage, so you can still access your savings any time you need to. This gives you more flexibility than if you had used your savings to buy the house in the first place, as your savings are still accessible in an emergency.

As you aren't receiving interest on your savings, you aren't having to pay tax on that interest, so you are benefitting from your savings in a tax-free manner. They are therefore attractive to higher rate tax payers.

The fact that it is an offset mortgage only refers to the fact that savings are offsetting the mortgage balance. The underlying mortgage involved can still be of any type, e.g. tracker or fixed rate, interest only or repayment.

Mortgage descriptions coming soon:

Bad Credit Mortgage

Buy to Let Mortgage

Fixed Rate Mortgage

100% mortgage.

Self cert mortgage.

Flexible mortgage.

Capped Rate mortgage

First time buyer mortgage

Cash back mortgage

Remortgages

Interest only mortgage

Bridging loans

Second mortgages

Commercial mortgages.

Thanks for visiting our Mortgage page. We hope it helped find what you were looking for.