Everything you need to know about mortgages

Your guide to making sense of mortgage products

We know that mortgage products can be difficult to understand, which is why we've put a guide together to explain the subtle differences between the products available on the market.

This guide has been designed to give you an idea of the mortgage options available, and help you to decide which type of mortgage may be best for you. For further mortgage advice, New Homes Mortgage Helpline offer a no-obligation service and will be able to advise you on your affordability as well as the various mortgage options available.

Fixed rate

With a fixed-rate mortgage, the amount of interest you pay each month remains the same for a set period of time – commonly two to five years. Since mortgage repayments are often the largest outgoing for most households, many people enjoy the peace of mind that comes with a fixed-rate mortgage. This means you can budget accordingly, safe in the knowledge that your payments will remain the same each month for a fixed period of time.

Standard variable rate

A standard variable (SVR) mortgage is a type of mortgage interest rate that you are most likely to move onto after your introductory discount, tracker, or fixed-rate offer ends. The interest rate on this type of mortgage is set by your provider, and tends to be higher than most other types of mortgage, so it often works out more expensive. For this reason, you might want to consider re-mortgaging (switching your existing mortgage to a new deal), if your current offer is coming to an end.

Variable rate

With variable-rate mortgages, interest rates can change at any time, rising and falling according to the Bank of England base rate. This type of mortgage generally offers a lower interest rate than a fixed-rate product. You will benefit from a drop in the base rate, but could also end up paying more if the interest rates rise. There are two main types:

• Tracker mortgage: a tracker mortgage is based on the Bank of England base rate, plus a percentage on top. It changes in line with the base rate, which means payments could go up or down. A tracker mortgage can be tied to the base rate for a set number of years, or for the life of the mortgage.
• Discount mortgage: a discount mortgage is a type of variable rate mortgage that is tied to the lender’s standard variable rate, but with a discount for a set period of time (usually from two to five years). The amount you pay could change from month to month.

Capped rate

With a capped rate mortgage, you pay the lender’s standard variable rate, so your payments could go up, or down. However, a cap is put in place so that the rate you pay cannot rise above a certain point, even if the standard variable rate increases above this.