When it comes to choosing the right mortgage product, many of us have little to no idea what type of mortgage to choose and what are the ups and downs. Once you have read a bit more below, you will have some understanding of what product may suit your needs better. However, an experienced adviser can narrow down the search and provide you with the best recommendation, explain gains and drawbacks, and substantiate their advice. 

When we think about mortgages, the most basic type that comes across is a standard variable-rate (or SVR for short) mortgage. Lenders set the interest rate as and when they deem fit, however, market forces and competition have a certain impact on these decisions. SVR mortgages usually have quite low arrangement fees and no early repayment charges which are a good thing but at the same time future payments are unpredictable, and they may rise just as they may fall. Worth noting that the standard variable rate is the rate that comes into play once the special rate (which we will talk about later) has expired.

There is a variation of an SVR mortgage called a discounted-rate mortgage. For a fixed period of time, the lender sets a discount that is applied to the interest rate for a fixed term which is agreed at the outset. Arrangement fees are usually between £0 and £500 and are non-refundable. There is no protection against rises in SVR and early repayment charges may apply.

Similarly to a discounted-rate mortgage, the capped-rate mortgage interest rate also changes in line with the SVR, however, only up to a present cap which it may not exceed during the agreed period. Some of these products may also have a lower limit which is called a collar that limits how low the interest rate can fall. There are usual arrangement and early repayment fees associated with the capped-rate mortgage.

Another mortgage with a variable rate is a tracker mortgage. The interest rate is directly dependant on the Bank of England base rate that is set 6 times a year. The tracker rate is higher than the base rate and is locked on it for a fixed number of years. There usually are substantial arrangement fees up to £999 and more and early repayment charges may apply.

One of the most popular mortgage products is a fixed-rate mortgage. The interest rate is fixed for a period of time - usually, 2-3 years - and reverts to the standard variable rate once the fixed period has expired. The main advantage is that the monthly payments during the fixed-rate period are pre-defined and won’t change, thus, helping to budget. However, arrangement and early repayment fees can be substantial, too.

As you may have noticed, there are certain restrictions associated with various mortgage products. If you would like to avoid early repayment fees or would like to be able to underpay or even take a payment holiday, you may want to consider a flexible mortgage. These mortgages are subject to circumstances and may offer you greater flexibility when it comes to servicing your mortgage.

With all of the above being said, we now realise how complicated it can be to pick the right mortgage. A mortgage contract is one of the most expensive transactions most of us will enter in our entire life - that’s why it is crucial to receive good unbiased advice based on personal circumstances. At Insito your goals and wellbeing are our main priorities. We understand your needs and help you through every step of this challenging process.