Choosing the right mortgage for you
With so many mortgage options on the market, knowing which one to choose can feel overwhelming. Many people find applying for a mortgage stressful, but the reality is if you’re prepared in advance and know your options it can be a relatively smooth process from application to completion.
Because we work with first-time buyers every day, we’ve put together this comprehensive guide to mortgages, so you know the types available and the choices you have. Make sure to also check out our guide for first time buyers for information on the rest of the home buying process.
Guides & FAQs | Guides | Buying | Choosing the right mortgage for you
What to know when buying with Redrow
- Take a look at the range of schemes and incentives available on Redrow homes to help you budget - for example Deposit Unlock or the First Homes Scheme.
- At Redrow we work with a selection of independent new build mortgage experts, who often have access to the best deals and offers.
- If you'd like some more help, visit the Customer Experience Suite at your chosen development with any questions or queries you may have.
What are the different types of mortgages?
Broadly speaking, all mortgages work in the same way. The homebuyer borrows money over a set period of time, and the amount is paid back plus interest. The rate of interest will typically be set according to the base rate (the rate of interest set by the Bank of England) - check our guide to common mortgage jargon for more information.
Of course, how much you pay will depend on your interest rate, how long your mortgage term is, the type of mortgage you have and how much you’ve borrowed.
The main types of mortgage available in the UK are:
- Fixed rate mortgages
- Variable rate mortgages
- Tracker mortgages (variable)
- Discounted rate mortgages (variable)
- Capped rate mortgages (variable)
Repayment vs interest-only mortgages - what’s the difference?
With repayment mortgages, also known as Capital and Interest mortgages, the borrower repays a portion of both the capital (the amount you’ve borrowed) and a portion of the interest owed.
If all payments are made, this means that by the end of the term the borrower will have paid off the entire amount owed plus interest.
While the vast majority of mortgages are arranged via repayment, some are interest-only. This means that the borrower pays the interest owed each month, but none of the capital. The original amount borrowed will be due at the end of the term.
Which mortgage is best for me?
Fixed rate mortgages
Advantages of fixed rate mortgages
If you choose a fixed rate mortgage, you’ll pay the same rate of interest for a set amount of years until your deal ends. This can be a good option for managing your budget, since you’ll know how much you’ll be paying out each month.
Even if the base rate goes up, your interest rate will remain the same for the length of your mortgage deal.
Disadvantages of fixed rate mortgages
You’ll need to keep an eye on your deal to make sure you don’t slip out of the fixed term without noticing. You also typically can’t leave a fixed term mortgage early without incurring an Early Repayment Charge (ERC).
Variable rate mortgages
As the name suggests, variable rate mortgages have a changeable rate of interest. That means the amount of interest you owe can go up or down - standard variable mortgages typically follow a variable rate set by the lender, unlike tracker mortgages (more on those below). There are a few different types of variable mortgages to choose from, so we’ve outlined some key details of each below.
Advantages of variable mortgages
Variable rate mortgages often have lower initial interest rates versus fixed rate deals, so they might be more affordable on a monthly basis for some. Of course, if overall interest rates go down, borrowers with variable rates could potentially save a significant amount. While this does mean borrowers are more vulnerable to potential Base Rate increases, specific mortgages like capped rate deals can help protect against this.
Disadvantages of variable mortgages
The potential disadvantages of variable rate mortgages, unsurprisingly, typically involve the potentially uncertain nature of the interest rate. Because the Base Rate can fluctuate and interest rates can be volatile, borrowers with variable deals may have to deal with unpredictable monthly payments. This of course makes budgeting difficult, and if the interest rate rises significantly it can make monthly mortgage payments higher.
What is a tracker mortgage?
A tracker mortgage is a type of variable rate mortgage where the interest rate is directly linked to a specific interest rate, such as the Bank of England's Base Rate. The interest rate on a tracker mortgage will rise and fall in line with changes in the specified base rate, rather than a rate controlled specifically by the mortgage lender.
What is a discounted rate mortgage?
With a discounted rate mortgage, the interest rate is set at a certain percentage below the lender's standard variable rate for a specified initial period. This discount period usually lasts for a few years, after which the mortgage rate reverts to the lender's rate.
What is a capped rate mortgage?
A capped rate mortgage is a type of variable rate mortgage where the interest rate can fluctuate with the market as with other variable deals but has an upper limit or "cap" beyond which it cannot rise. This cap provides a level of protection to borrowers by ensuring that their interest rate will not exceed a specified maximum, regardless of how high market rates may go.
So, how to choose the right mortgage for you?
Clearly, there are lots of options on the market and lots of different things to consider. Depending on where you’re buying a new home, how much you earn, how much you need to borrow and more, you’ll have different lenders available to you. You’ll also likely find a range of different mortgage options available to you if you’re selling an existing home - check out our Help to Sell and Part Exchange services for an easier way to move.
We always recommend speaking to a mortgage adviser to assess your options and help you decide how much you should borrow and how much you can afford monthly. We work with a number of preferred mortgage specialists who are experts in new build homes too, so we can help arrange the perfect deal for you. Whether you’ve already found your dream Redrow development near you or are just getting started on your new home journey, we’re here to help.
Learn more about Buying with Redrow and get started finding your dream home.
To the best of Redrow’s knowledge, everything in this guide is true at the time of writing. All descriptions, images and plans are illustrations, examples and/or approximations only and some processes listed may differ when buying a Redrow home, please speak with the sales team at your chosen development for more details. Redrow does not accept any liability or responsibility contractual or otherwise for any reliance on the information contained within the guide.