Mortgages reviewed: Mortgage features explained

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From interest rates to arrangement fees, we explain the most important bits of mortgage jargon you need to understand.

Buying a property is the biggest financial transaction most of us make and, unless you're very fortunate, you'll have to borrow from a bank or building society to be able to afford one.

Getting a mortgage is your pathway to home ownership, but it can be laden with jargon, pitfalls and small print that could put you off course.

If you'd like personal advice from an impartial expert, call Which? Mortgage Advisers on 0808 252 7987.

Alternatively, if you'd like to compare mortgages for yourself, visit Which? Money Compare to check out hundreds of deals. You can compare:

In this guide, we explain the different types of mortgage deal you can encounter, and provide you with all the information you need to make the right choice. 

Interest rates explained

There are two main types of mortgage interest rate you can have - fixed and variable.

Fixed-rate mortgages

With a fixed-rate mortgage, the interest rate stays the same for a set period of time. This means that for every month during this set period, your mortgage repayments will remain the same. The most common types of fixed-rate deal are two or five-year fixed-rate mortgages. The main benefit of a fixed-rate mortgage is that you know what your repayments will be in advance.

Go further: What is a fixed-rate mortgage? - all you need to know about these types of loans

Variable-rate mortgages

In contrast with a fixed-rate mortgage, your interest rate will go up or down depending on market conditions. With a variable-rate mortgage you would benefit from any drops in interest rates - but you would also face an increase in repayments if rates went up.

The Bank of England base rate is currently at a historic low of 0.5%.

There are different types of variable-rate mortgage:

Tracker mortgage: with a tracker mortgage your interest rate will follow the Bank of England base rate by a set margin. For example your rate may be the base rate +2%. You can get mortgages that track the base rate for a few years or for the entire term of the loan.

Standard variable rate: with a standard variable rate mortgage (also known as an SVR or reversion rate mortgage) you pay an interest rate set by the bank. The SVR is the bank’s default interest rate without any fixed-term deals or discounts attached. The bank can change its SVR at any time.

Discount mortgage: with a discount mortgage you pay an interest rate that is a fixed amount below a lender’s standard variable rate, for a set period. For example you may pay the lender’s SVR -1%. 

Loan-to-value ratio (LTV)

The loan-to-value ratio (LTV) of a mortgage represents the amount of money you are borrowing as a percentage of the value of your property. For example, if you were to buy a £100,000 property and borrowed £75,000, you would have a 75% LTV mortgage.

Generally speaking, the bigger the LTV, the more expensive your mortgage is likely to be. This is because the more you borrow, the bigger the risk for the lender - it has more to lose if you aren’t able to meet your repayments. So if you have a larger deposit, you'll usually be offered better mortgage rates.

In the past, lenders would lend 100% or more of a property’s value but these types of mortgage are not available anymore. The most lenders will offer now tends to be 95% of a property’s value - but most people will borrow less than this.

Go further: how much deposit do I need for a mortgage? - read our guide to get to grips with this

Mortgage fees

With most mortgages you will pay fees to set them up such as arrangement fees, booking fees or product fees. These fees can cost thousands of pounds so you need to make sure you take them into account when looking for a mortgage. The mortgages with the lowest interest rates often come with high arrangement fees. 

Depending on how much you’re borrowing and the type of mortgage deal you're looking for, it's sometimes worth paying higher fees in exchange for a lower interest rate - but this isn't always the case. 

We'd recommend taking professional advice before committing to a particular mortgage. Which? Mortgage Advisers has a team of impartial experts who can tell you about the best deal for your personal circumstances - just call 0808 252 7987 for a free initial consultation.

Incentives

Many mortgage deals come with incentives or special offers such as no fees or cash back on the mortgage deal. Although these incentives often sound appealing, make sure you calculate how much that mortgage deal would cost compared with other products.

Mortgages with special offers attached are often not the best deals on the market and you may be able to get a cheaper loan elsewhere.  

Flexibility

You may want the flexibility to make overpayments or take some payment holidays. Not all mortgages will allow you to do this so check the product specification carefully.

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Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.