Getting a mortgage is the most common way for entering the property market and buying a house. You may not have been aware of the vast array of different mortgage types on offer. It is important to understand the pros and cons of each loan type so that you can choose which one is best for your circumstances.

PPS Chartered Accountants have compiled a list of all the mortgage types, so that you can make a more informed decision as to which mortgage offer you should go for. We understand that choosing the right mortgage is a huge step to take; our clients have access to unlimited free meetings and phone consultations with our expert accounting team for the very best advice.

The majority of mortgage types are repayment mortgages. This means that you will have to pay back the loan each month with added interest. We will have a look at all the repayment mortgage types in this article.

Variable Rate Mortgage

Variable rate mortgages are perhaps the most common loan type. The standard variable rate (SVR) is closely related to the Bank of England’s base rate, and can go down as well as up depending on the country’s economic situation.

You can see there is a clear downside and upside to this. While a variable rate may lead to increased interest rates on repayment, it can just as easily go down when the UK enters a period of economic upturn. This means you won’t have to spend as much on the mortgage overall.

However, make sure to read the lender’s fine print, as they may increase their variable rate even if the Bank of England’s base rate doesn’t change.

Fixed Rate Mortgage

Fixed rate mortgages have their interest rate locked at a certain percentage for the entire duration of the contract.

The main advantage is that you will know exactly how much you need to pay back in total before accepting the loan. In this way you can plan ahead. Furthermore, if prices increase you won’t be affected.

However, you will be unable to benefit from a drop in interest rates should that ever happen.

Capped Rate Mortgage

Capped rate mortgages are probably the most attractive proposition right now, especially due to the volatility of the current global markets. However, they are few and far between.

As the name suggests, capped rate mortgages introduce a cap on the interest rate meaning it cannot go above a certain percentage. It is still free to go down though, offering the best of both variable and fixed rate mortgages.

What’s the catch, I hear you ask? Well, in order for the lender to recuperate some money should the UK’s standard interest rate go down, they will charge a lot more should you decide to end the repayment terms early to benefit from an alternative deal.

Make sure to read our subsequent article on additional mortgage variations, so you can make an enlightened decision in possession of all the facts.

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