Mortgages
Mortgage types explained
The product type decides how your monthly payment behaves for the next few years. Here is what each one means in practice.
Fixed rate The interest rate stays the same for a set period, typically two, three, five or ten years.
Your payment does not change for the fixed period however the Bank of England base rate moves. At the end you move on to the lender's standard variable rate unless you remortgage.
Fixing for longer buys certainty at the cost of flexibility: early repayment charges usually apply if you leave during the fixed period.
Tracker The rate follows the Bank of England base rate plus a set margin, so it moves up and down with it.
If the base rate falls your payment falls, and if it rises so does your payment. Some trackers have a floor below which the rate will not drop.
Trackers often have lower or no early repayment charges, which suits people who may sell or overpay.
Standard variable rate The lender's default rate, which you move on to when a fixed, tracker or discount period ends.
Each lender sets its own standard variable rate and can change it at any time. It is usually well above the deals on offer, which is why most people remortgage before their deal ends.
Discount variable A set discount off the lender's standard variable rate for an introductory period.
Because it is tied to the lender's own rate rather than to base rate, the lender can change it independently. The discount is fixed; the rate underneath it is not.
Offset Your savings are set against the mortgage balance so you pay interest only on the difference.
With £30,000 in a linked savings account and a £250,000 mortgage, you pay interest on £220,000. The savings stay accessible and earn no interest of their own.
Offset mortgages suit people with meaningful savings or irregular income who still want the money within reach.
Interest only You pay only the interest each month and repay the full loan at the end of the term.
Monthly payments are lower, but the capital is untouched, so you need a credible plan to repay it: selling the property, investments, a pension lump sum or savings. Lenders will ask to see that plan.
Interest only is common on buy-to-let mortgages and less so on residential ones, where lenders apply stricter criteria.
Good to know
Questions about mortgage types
Which type of mortgage is best?
There is no best type, only the one that fits how you want your payments to behave. Someone who needs certainty leans towards a fixed rate; someone who may sell or overpay soon may prefer a tracker with low early repayment charges. We talk it through before recommending anything.
What happens when my fixed rate ends?
You move on to the lender's standard variable rate unless you remortgage or switch to a new product with the same lender. We contact clients about six months before a deal ends so that never happens by accident.
Can I overpay on a fixed rate mortgage?
Most lenders allow overpayments of up to ten per cent of the balance each year during a fixed period without an early repayment charge. Above that a charge usually applies. Trackers are often more flexible.
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Your home may be repossessed if you do not keep up repayments on your mortgage.
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