Compare the different mortgage types
There are a few different mortgage types in the UK, but the two you’re most likely to come across are:
Fixed-rate – where interest is fixed for 2-5 years before the loan moves to a standard variable rate. Approximately 83% of all mortgages granted are fixed rate.
Variable rate – where the interest rate depends on the general interest rate set by the Monetary Policy Committee (MPC). These tend to be riskier than fixed-rate mortgages but can be cheaper to service if the general interest rate drops significantly.
Other less common mortgage types are listed below.
Discount mortgages
Discount mortgages are a form of standard variable rate (SVR) mortgage where a discount is applied over a certain period (typically 2-3 years).
Capped rate mortgages
A capped rate mortgage is when the interest rate is capped which means it cannot be raised above a certain amount. Do note however that many capped-rate mortgages are offered at a higher rate than comparable variable-rate options.
Offset mortgages
Offset mortgages have enjoyed a renaissance in recent years as borrowers look to reduce their repayments. Essentially, offset mortgages require you to deposit savings into an account linked to the mortgage. Your savings are then used to offset the mortgage such that interest is calculated on the mortgage minus the cash deposited.
