Are you feeling overwhelmed by the number of different mortgage products available on the market?
Fixed-rate mortgages are by far the most common.
According to The Times, approximately 89% of new mortgage loans taken out in August 2024 were fixed-rate mortgages.
This type of mortgage is popular because of the stability that it offers, especially during periods of economic uncertainty.
A mortgage is likely to be one of the biggest financial commitments you make, so it’s important to understand the differences between products to help you decide which best suits your needs.
At UKMC, our team of mortgage experts can offer straightforward, jargon-free advice and guidance to help you identify the most suitable mortgage deal for your circumstances.
For tailored mortgage advice, contact us today by calling 01925 573 328.
What are the most common types of mortgages?
Fixed-rate mortgages
The amount of interest you pay on the loan is fixed for a set amount of time, usually two, three, five, or 10 years.
This means that you benefit from predictable and consistent monthly payments, which makes budgeting much easier.
Once your fixed-rate term ends, you will need to remortgage, or the mortgage will usually revert to your chosen lender’s standard variable rate.
Fixed-rate mortgages are a type of repayment mortgage where your monthly payments include money towards repaying the loan you’ve borrowed, as well as interest on the loan.
Pros:
- Predictable, fixed monthly payments
- Protected from increases in the Bank of England’s base rate
- Flexible terms
- Offers stability and simplicity
Cons:
- You won’t benefit if interest rates fall
- Subject to early repayment charges if you leave a deal early
Fixed-rate mortgages are by far the most popular option.
They are a good choice for first-time buyers and budget-conscious borrowers who value predictability in their monthly payments.
Locking into a fixed-rate mortgage when interest rates are low and expected to rise can help reduce the overall costs of borrowing.
However, you may want to consider other options if interest rates are high and predicted to start falling soon.
Variable-rate mortgages
Where fixed-rate mortgages are stable and consistent, variable-rate mortgages, as the name suggests, fluctuate and change over time.
These fluctuations are made at the lender’s discretion, and are usually influenced by the Bank of England’s base rate and other economic factors.
There are various types of variable-rate mortgages, including the standard variable rate (SVR), tracker mortgages, and discounted variable rates – each type works slightly differently.
Generally, with a variable-rate mortgage, when interest rates are high, your monthly repayments will be high, but if they fall, your monthly repayments will be reduced to reflect this change.
Pros:
- Variable-rate mortgages often offer lower initial rates
- Fewer early repayment charges
- Benefit from interest rate cuts
Cons:
- Unpredictable monthly payments
- Exposure to rate increases
- Complexity
Variable-rate mortgages are best suited to borrowers with a higher risk tolerance because of the risk of repayments fluctuating.
If interest rates are expected to remain low or decrease, opting for a variable-rate mortgage can help to reduce your overall cost of borrowing.
However, it’s important to note that interest rates are unpredictable and there’s always an element of risk that rates could rise.
Interest-only mortgages
Unlike repayment mortgages, interest-only mortgages only require the borrower to pay the interest on the loan through their monthly payments, not the capital they have borrowed.
This means that monthly payments on interest-only mortgages are low compared to those on repayment mortgages.
Of course, the original loan amount must still be repaid in full, but this is done at the end of the mortgage term.
Lenders usually require borrowers to demonstrate that they have a clear plan for how they will repay the loan at the end of the term before they grant them an interest-only mortgage.
Borrowers commonly use inheritance, savings, investments, or the sale of a property to cover the cost.
Pros:
- Lower monthly payments
- Improved cash flow and flexibility
Cons:
- Original loan needs to be repaid in full at the end of the term
- Stricter eligibility requirements
- Can require a higher initial deposit
Interest-only mortgages are most commonly used by those who wish to invest in buy-to-let property.
However, they are still available to residential buyers who meet the eligibility criteria and have a solid repayment plan, such as people expecting future windfalls.
While they offer flexibility and lower initial payments, the need for a reliable strategy to repay the capital makes them a better fit for financially disciplined borrowers.
Get tailored mortgage advice from our experts at UKMC
At UKMC, we know our stuff when it comes to mortgages. We aim to make finding the right mortgage for you as straightforward and hassle-free as possible.
No matter whether you’re poised to buy your first home or need help securing a buy-to-let mortgage, our team will offer simple, down-to-earth support and guidance.
We search thousands of mortgage deals to find the best deals out there for you and your circumstances.
From understanding affordability and navigating lender criteria to handling paperwork and finalising your application, we’ll ensure everything runs smoothly from start to finish.
At UKMC, it’s not just about finding you a mortgage – it’s about finding the right mortgage.
We take the time to understand your goals, whether it’s securing your dream home, reducing your monthly payments, or building your property portfolio.
Ready to learn more? Let’s chat – call us on 01925 573 328 or fill out a contact form online, and we’ll get back to you soon.
Disclaimer
UK Mortgage Centre Limited is an Appointed Representative of Refresh Mortgage Network Limited.
Refresh Mortgage Network Limited is authorised and regulated by the Financial Conduct Authority. We are entered on the Financial Services Register under firm number 1019794.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments. The Financial Conduct Authority does not regulate some forms of buy-to-let mortgages.
The Financial Conduct Authority does not regulate will writing and taxation and trust advice.
You may be charged a fee for your advice. A typical fee is £495, which would be payable when you receive your mortgage offer. Your dedicated advisor will discuss this further on your free initial phone call.
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