Types of UK mortgages

People who apply for mortgage loans in the UK, must take into account all the terms and conditions including the interest rate payable. When choosing a home mortgage in the UK, for example, borrowers should select the mortgage that is suited to their personal financial situation.

Features of UK mortgages

Mortgage terms to consider are whether the interest rate is fixed or variable, or whether there are fees required with the application or penalties for early redemption of the mortgage. The amount of the loan required is important, as mortgage loans are likely to be limited to a maximum of a certain percentage of the applicant’s annual salary. The amount loaned is likely to be restricted to a maximum percentage of the value of the house. The length of the repayment period may be around 25 years, and will probably have to be repaid before the borrower reaches retirement age. Regular mortgage repayments may be required in addition to interest payments, or the mortgage could require payment of interest only with repayment of the whole sum at the end of the term. It may be possible to set up an offset account, in which funds could be saved and interest on the mortgage reduced. The taxpayer may be allowed a mortgage reserve account to borrow a further amount if necessary on the same terms as the original mortgage.

Fixed rate mortgages

At a time when interest rates are expected to rise, a fixed rate mortgage will probably be offered at a higher rate of interest than variable rate mortgages. The prospective buyer must consider how much higher a variable rate mortgage will rise in the near future and to what extent a fixed rate mortgage may be more expensive in the long run. A fixed interest rate has the advantage of certainty, enabling the borrower to plan interest payments into the future and calculate personal finances accurately.

Tracker mortgages

Base rate tracker mortgages are mortgage loans where the rate of interest is linked to the base rate, normally being expressed as the base rate plus a certain percentage. This rate will rise and fall with the base rate and may be advantageous where interest rates are falling or are likely to remain at the same level for some time into the future.

Discount mortgages

Those looking for low mortgages may consider a discount mortgage which offers interest rate at a discount from the lender’s normal variable rate for a certain length of time, normally a few years. After this time, the interest rate returns to a variable rate. Borrowers should give careful attention to the rate that they will pay after the initial discount period has finished, and how this is determined.