Mortgage Types - A BPS guide.

These types of mortgages fix the rate of interest throughout an introductory term.

That means that for, typically, the first 2-5 years of your mortgage, your monthly repayments are fixed.

This is great if you want to easily keep track of your outgoings.

However, you may be liable for penalties if you then wish to repay the mortgage early.

Advantages
A great product for budgeting ahead as repayments will remain the same even if interest rates rise.

Disadvantages
You're also tied to the rate if interest rates fall. And if you want to exit the mortgage early, you may incur an early repayment charge which can be £££s!

Tracker Mortgages 'track' the Bank of England base rate, for example, and so repayments can go up or down. Lenders often offer introductory terms of 2-3 years and can charge an early repayment penalty if you choose to repay early.

Advantages
Right now, tracker mortgage rates are slightly lower than on fixed rate deals. This can change with market conditions however you can easily understand what your monthly repayments will be.

Disadvantages
Tracker mortgages don't offer the same security as fixed rate mortgages because the rate is variable. Your mortgage repayments can rise as well as fall, so you should do some financial planning to ensure you can make your mortgage repayments each month.

Like tracker mortgages, discount mortgages are a variable rate mortgage product. However, they are linked to the lender's Standard Variable Rate. Lenders can change their Standard Variable Rate even though the base rate has not changed.

Discount mortgages can also offer introductory terms of 2 to 3 years and may incur penalties if you decide to leave your mortgage deal before the introductory term is over.

Advantages
Rates can be lower than they would be on a fixed rate deal and are subject to change. So if your lender's current Standard Variable Rate was to fall, your monthly payments would reduce as well.

Disadvantages
As discount mortgage rates are linked to a Standard Variable Rate, the lender can adjust this at any time. So even if the Bank of England base rate remains steady, if you lender changes their Standard Variable Rate, this will be reflected in your repayments.