Bad Credit Mortgage Types

Look at the different mortgage types that can benefit you. Whether you choose to fix the interest rate or go for a variable option will depend on whether you prefer the security of fixed payments or you feel able to cope with any changes in your monthly mortgage payments. It’s definitely worth knowing the pros and cons of each in order to make an informed decision that suits your personal circumstances best.

Discount rate mortgage

A discount mortgage deal is similar to a tracker, except it follows the lender’s Standard Variable Rate (SVR) rather than the Bank of England base rate.

Each lender has their own SVR which the lender can change at their discretion. The discount will usually be 1%-2% below the SVR and will last two to three years. You must be prepared for your mortgage payment to increase if the lender increases their SVR.

Capped rate mortgages

Capped rate mortgages are designed to offer the flexibility of variable rates with the security of fixed rates.
With a capped rate you have the security of knowing that for a set time, your interest rate can never rise above a fixed point. However if interest rates fall, you can still benefit. Your interest rate will generally be a bit higher than with a variable rate mortgage so you may still pay more overall.

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Variable rate mortgages

As the name suggests a variable rate mortgage can go both up or down at any point, the lender has the options to increase or decrease their variable rates as their discretion.

Fixed rate mortgages

A fixed rate mortgage offers an interest rate which is fixed for a number of years, typically between two and five years up to 10 years..
Whist on a fixed rate the rate will not change until the end of the agreed fixed term which can help you budget for the duration of the fixed deal.

Tracker rate mortgage

A Tracker mortgage will track an external rate typically the bank of England Base rate. Whilst on a tracker deal the rate will increase and decrease according to movement on the benchmark rate.