What kind of mortgage do I need?

Whether you're an aspiring or current homeowner, there are many types of mortgage available. Here’s what you need to know to help find the right mortgage for you.

A mortgage is the money borrowed from a lender (usually a bank or building society) used to purchase a home or property. Every month, you will pay the interest, however most mortgage holders choose a repayment mortgage meaning they pay back the loan with interest over an agreed period of time to build equity.

Equity is the value of your home or property, minus what’s left to pay on your mortgage. This can be used as a deposit for a future home, or used to borrow more in the future, to fund things like home improvements.   

Mortgages fall into three types: fixed-rate, variable rate deals and specialist. We’ll give you information on the most common types of mortgage.

A fixed-rate mortgage is an agreement with your lender to keep your mortgage interest at the same rate for a certain amount of time (known as a fixed period). Typically this fixed period lasts two, three or five years. Though some lenders will allow you up to 10 years.

This is the most popular type of mortgage as it can provide the feeling of stability – knowing you’ll pay the same amount each month for a certain amount of time.

A variable rate mortgage is an agreement with your lender to align your mortgage interest to a reference rate that can change, normally this is the Bank of England (BoE) base rate. This means the interest rate and your monthly mortgage payments can change at any time during your mortgage deal. There are three types of variable rate mortgage:

A tracker mortgage is the simplest type of variable rate mortgage as it directly follows the Bank of England (BoE) base rate. This means that if the base rate rises, so will your monthly interest. But if it falls, your interest rate will too. Typically, a tracker mortgage will be the base rate, plus a certain percentage (like 0.5%) to set your interest rate.

This is the most common type of variable rate mortgage.

A standard variable rate (SVR) mortgage is similar to a tracker mortgage, however your lender doesn't strictly follow the BoE rate so if raises increase, it won’t necessarily mean your mortgage interest rate will. Your lender will typically add a standard interest rate on top of the BoE rate.

Typically, you wouldn’t choose an SVR mortgage, but be moved to one when your current mortgage deal expires.

A discounted variable rate mortgage is a SVR mortgage with a defined reduction (e.g. 3%) applied against a lender’s standard interest rate (which is added on top of the BoE rate) for an agreed period of time. 

A specialist mortgage is a mortgage designed for people with more complex mortgage requirements such as being self-employed or wanting to use a family member as a guarantor. If you’re in this situation, you should speak to a mortgage advisor like Better.co.uk to find a mortgage that suits your needs.

The simplest way to make sure that you’re getting the best deal for you is to compare mortgage rates and deals. We’ve partnered with the UK’s leading, regulated online mortgage broker, Better.co.uk to help current homeowners remortgage to find their next mortgage deal.

Better.co.uk works with hundreds of lenders across the whole market, and can help you find the rate that fits your affordability perfectly. 

We’ve got more blogs about the remortgage process and improving your loan to value.

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