Edward Gatheral from Mortgage Advice Bureau looks at the different types of mortgages available today.

Fixed Rate
The most common type of mortgage. A fixed rate mortgage has an interest rate and monthly repayment that will stay the same for a set period regardless of what happens to interest rates.
Deals are typically between two and five years, although it is possible to get a fixed term from seven years, up to ten years or more.
Advantages:
• Payments will not increase throughout the term of the fixed rate period.
• Ideal if you want to budget every month and know exactly what you are paying.
• Protection against interest rate increases.
Disadvantages:
• Difficult to get out of within the fixed term unless you pay a redemption figure which can be set at anything from 2% to 5% of the outstanding mortgage.
• If interest rates drop, you will not benefit.

Standard Variable Rate Mortgage (SVR)
A standard variable rate mortgage offers an interest rate set by the lender which is usually slightly higher than the Bank of England base rate. The base rate is the interest rate that will be charged once an initial deal period on a fixed or tracker rate mortgage comes to an end.
With an SVR mortgage you need to be aware that your mortgage payments could change each month, going up or down.
Advantages:
• If interest rates drop, your monthly payment should decrease.
• Easy to switch deals and you can leave at any time as there are normally not early repayment charges.
Disadvantages:
• This type of mortgage will not be suitable if you want to budget each month.
• The lender may not react quickly to a drop in interest rates.

Tracker Mortgage
A tracker mortgage is a type of variable rate mortgage which tracks the Bank of England base rate. With a tracker mortgage, the mortgage repayments could change every month.
Advantages:
• If the interest rate it is tracking drops, so will your mortgage payments as a result.
Disadvantages:
• Early repayment charges maybe applicable if you want to switch before the deal ends.
• If the rate it is tracking increases, so will your mortgage payments.

Discounted Variable Rate
A discounted variable rate mortgage is similar to a tracker mortgage except rather than being linked to the Bank of England’s base rate, it is linked to the lender’s standard variable rate. The SVR can change at the lender’s discretion and the monthly repayments will go up and down as a result.
Advantages:
• The rate starts off cheaper, which will keep monthly repayments lower.
• If the lender cuts their SVR, your payments will be less each month.
Disadvantages:
• Budgeting can be difficult as the lender is free to raise the SVR at any time and if Bank of England base rates rise, the discount rate will increase too.

If you would like to explore which type of mortgage will suit your personal circumstances contact us and we can put you in touch with an independent mortgage adviser for a free, no obligation chat.