Anyone looking at mortgages for the first time can be forgiven for thinking they’ve walked into a minefield! We know that in recent weeks it has become increasingly difficult for many people to get a mortgage of any kind and can only hope that situation will improve sooner rather than later. However that’s not what we’re looking at here.

For the moment we’re setting aside all those difficulties and concentrating on looking at all the different types of mortgages that exist and what their names mean. To anyone not well versed in financial matters, that is most of us, all these names can be confusing. It all looks like a lot of jargon.

That’s because it is! Let’s have a go at putting it all into plain English, starting with what is often considered the simplest type of all, the Standard Variable Mortgage. With one of these your interest rate goes up and down as the UK Base Rate goes up and down. That is set by the Bank of England and your lenders will set their rate at a bit above it. It’s up to them whether they follow every variation in the base rate or not, but in general they normally do.

Then there is the Fixed Rate Mortgage. Here the interest rate you pay is fixed. Whatever happens to the UK Base Rate yours stays the same. That means your monthly payments stay the same as well. If you like to know exactly how much your monthly outgoing will be for a considerable time ahead then this could be for you. The only thing is Fixed Rate mortgages are normally set up for a set period which is not usually the full lifetime of the mortgage. In fact it is usually quite short. After that you revert to the lender’s standard variable rate whatever that might be at the time.

A variation on this idea is the Capped Rate mortgage. This means that your interest rate cannot rise above the “cap?set at the outset when rates rise but it will fall whenever the rates drop. Again there is usually a short fixed term to this. Between one and five years is typical. It is possible to have a capped rate for the full life of the mortgage but then there is usually what’s called a “collar.?That simply means there’s a bottom limit below which your rate can’t fall. Cap and collar mortgages have their advantages but most mortgages are set up for twenty five years or more and who knows how far rates might fall in that time.

You may come across Discount Rate Mortgages. These usually take the form of “Low Start?deals where for the first six months to five years of the mortgage you pay a lower rate than the lender’s standard rate then move on to the normal rate. However you may pay a bit higher rate later on and such deals usually involve early redemption penalties. These are more significant than you might think. You may think the idea of you paying off your mortgage early is a joke but consider this. Statistically most mortgages only run for about five years before you either move house or re-mortgage. In either case your original mortgage gets paid off and any redemption penalties will kick in.

If you don’t mind your monthly payments going up and down with the base rate there’s the Tracker Mortgage. Here the lender sets, not a rate but a percentage above base rate, usually a smaller percentage above than their standard variable rate. That percentage remains constant whatever happens to the base rate. This type of deal can prove cheaper over the life of the mortgage.

Cash Back Mortgages, are often attractive to first time buyers. The lender offers you a cash lump sum at the beginning of the mortgage or sometimes at a pre-agreed time during the term. Such arrangements are usually only available with a standard variable rate.

Some people can’t provide proof of regular income. Their income may depend on variable bonuses or they work on short term contracts. Self Certification Mortgages are designed for such customers. You simply offer a declaration of what you earn and the lender bases its decision on that. You can’t often get more than about 75% on self certification though so you have to find a good deposit.

Generally all these types of mortgage are arranged on either an interest only basis where you don’t pay back any of the money borrowed until the end, often by means of an endowment policy, just the interest or a re-payment basis. That means each moth’s payment consists of some interest and some capital so that everything is paid back by the end of the term.

Everything in this article is also equally relevant when considering a remortgage.