7 Types Of Mortgage Products

By: Michael Hatfield

There are different types of mortgage products available in the market. Generally, different types of mortgage products are determined on the basis of repayment method. Each of them have their own pros and cons. Here's a list of different types of mortgages given below:

1)Fixed Mortgage: It is one of the most common mortgage product. It has a fixed interest rate for a designated time period of 2 to 4 years. They might need a slight premium for the security but it reduces the unaffordable interest payments. They are well protected from rate increases.

The few disadvantages associated with this type of mortgage include early repayment charges. You may not be benefited from the interest rate reductions.

2)Tracker Mortgage: A tracker mortgage tracks the bank base rate for a particular period of time and by a particular percentage like 0.85% above the base rate. But in certain types of mortgages you may need to pay more if your base rate increases. There can be charges for early repayments. In such cases, budgeting becomes more difficult as monthly payments can fluctuate.

3)Variable Mortgage: Variable rate mortgages are those which you generally opt for after the fixed term has ended. These are known as Standard Variable Rate (SVR). They are usually set up 1 to 2 % higher than the base rate. There are no hidden charges in such cases and you need to pay the current rate only to the lenders. Another advantage is that here you do not need to incur early repayment charges and arrangement fees.

It includes certain disadvantages like the budgeting can become more difficult and you are not well protected from interest rates if they increase. Cheaper alternatives are always available.

4)Capped Mortgage: Capped mortgages are based on the lender's standard variable rate that has a set limit of 7%. You do not need to pay above the capped rate within a specified period of time, even if the standard variable rate increases. The benefits of such mortgage types include knowing the maximum budget rate. You can make a budget knowing the maximum cost. Interest rate reductions can also be beneficial for you.

The disadvantages that it includes are early repayment charges and higher interest than the comparable fixed rates.

5)Discounted Mortgage: Discounted mortgages offer initial discounts on the SVR lenders. For example, for the first two years there can be 1% discount on the standard variable rate of 7%. There are no hidden charges allowing you to make true savings, i.e., the saved interest is not included in the loan.

The main disadvantage of this type of mortgage includes chances of early repayments. Rates may increase back to the standard variable rate lenders after the discount period ends.

6)Flexible Mortgage: They are available only with specific lenders. Commonly known as offset mortgages, they offset the savings balance or the current account against the mortgage amount. Therefore, you end up paying less interest over the mortgage term. You can make overpayments to reduce the loan faster.

7)Cashback Mortgage: Cashback mortgages are mainly designed to pay a percentage of the loan on its completion. Generally, they are more expensive than the other products and are usually linked with variable rates. Chances of early repayment charges are applicable.

These are the 7 different types of mortgage products available in the market. Refer to the mortgage advisers in Bristol dealing with different types of mortgages.

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