The Different Types of Mortgages Explained

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What is a Fixed-Rate Mortgage?

What is a Tracker Mortgage?

What is a Repayment Mortgage?

What is an Interest Only Mortgage?

What is an Offset Mortgage?

The different types of Mortgages in Leicester we provide

When you start your mortgage process in Leicester, you will come to realise that there are lots of different options available to budding homeowners and existing homeowners alike.

This article will cover a list, alongside related videos, of the most popular types of mortgages available on the market. Whether you are a first time buyer in Leicester, looking at moving home or need to remortgage, these types of mortgages should all be relevant to you.

If you have any further questions mortgage-related, then please do not hesitate to contact us and speak to one of our dedicated mortgage advisors in Leicester.

What is a Fixed-Rate Mortgage?

A fixed-rate mortgage means that your mortgage payments will remain as they have been for a set period. You can set the length of the fixed term yourself, with common options typically being 2, 3, or 5 years or longer.

No matter what happens to inflation, interest rates, or the economy, you can rest assured that your mortgage payment, usually your biggest outgoing, will not change at any point during your term.

What is a Tracker Mortgage?

A tracker mortgage means that your interest rate will follow the Bank of England’s base rate. This means that the lender that you are with does not set the rate themselves.

You will be paying a percentage above the base rate of the Bank of England. To provide an example of this; if the base rate is 1% and you are tracking at 1% above the base rate, that means you will be paying a scale of 2%.

What is a Repayment Mortgage?

When you take out a repayment mortgage, you are paying capital and interest together. So as long as you keep your payments going for the full length of the mortgage term, the mortgage balance is guaranteed to be paid off at the end, with the property becoming yours.

It is the most risk-free way for your capital to be paid back to the lender, in the early years it is mainly the interest that you are paying, and your balance will go down at a slower rate, especially if you have taken out a 25, 30, or 35-year term.

This situation will switch up in the last ten years or so of your mortgage, where your payments are paying off more capital than interest, and the balance will come down at a much quicker rate.

What is an Interest Only Mortgage?

While many Buy to Lets in Leicester get set up on an interest-only basis, it is much more challenging to get a residential property on that same basis.

It is a lot less likely for lenders to offer an interest-only product nowadays. However, there are certain circumstances where this may be a viable option.

These include downsizing when you get older or having other potential investments that you will use to pay back the capital. Lenders are being a lot more stricter when it comes to offering these products now, and the loan to values are a lot lower than they once were.

What is an Offset Mortgage?

With an offset mortgage, the lender will set you up a savings account alongside the mortgage account you have with them.

This works in a way where, let’s say you have a mortgage balance of £100,000 and £20,000 gets deposited into your savings account, you would only pay interest on the difference, so in this case it would be £80,000. It can be a very efficient way of managing your money, especially if you pay higher rates of tax.

Date Last Edited: December 6, 2023