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Types of mortgage explained

Our mortgages

Choosing a mortgage can be confusing. With different types of products and rates available, where do you start?
In this section we clearly explain the different types of mortgages in order to help you work out what is best for you.

How fixed rate mortgages work
You choose a number of years to fix your rate for – usually two, three or five. For this fixed period, your monthly payments will stay the same. After your fixed rate period you move onto the Standard Variable Rate (SVR).

A fixed rate mortgage might suit you if:

  • you prefer to know exactly what you need to pay month to month during the fixed rate period.

Pros
With a fixed rate mortgage you can budget for a set period of time.

If the Bank of England base rate goes up and you’re still in your fixed rate period, your monthly payments won’t increase.

You can overpay up to 10% of your outstanding balance (minimum overpayment of £500) per calendar year without paying an Early Repayment Charge.

Cons
If the Bank of England base rate goes down and you’re still in your fixed rate period, your monthly payments won’t decrease.

If you repay or want to move your mortgage during the fixed rate period, you’ll most likely pay an Early Repayment Charge.

How tracker rate mortgages work
You choose a mortgage with an initial rate period and during this period your rate tracks above the Bank of England base rate. The initial rate period is usually two or three years and after that you move onto the Standard Variable Rate (SVR).

A tracker rate mortgage might suit you if:

  • you think the Bank of England base rate will stay low or get lower but, in the event it did increase, you would be able to cover any increase in your monthly mortgage payments

  • you think you might want to make unlimited overpayments on your mortgage to be mortgage-free quicker. The minimum overpayment is £500.

Pros
If the Bank of England base rate goes down during your initial rate period, your payments for your tracker rate mortgage will go down too.

You can make unlimited overpayments (minimum overpayment of £500) without paying an Early Repayment Charge.

If you already have a Santander tracker rate mortgage, you may only be able to make overpayments of 10% of your outstanding balance per calendar year (min £500) without paying an Early Repayment Charge.

To find out about your mortgage, check your original offer Key Facts Illustration

Cons
As the rate tracks above the Bank of England base rate, if the base rate increases so will your monthly payments. You need to be comfortable your budget will allow an increase in your monthly payment.

How Lifetime Tracker mortgages work
With a Lifetime Tracker mortgage your rate will track above the Bank of England base rate for the life of your mortgage term.

A Lifetime Tracker mortgage might suit you if:

  • you don’t want to ever look for a new mortgage deal again

  • you think the Bank of England base rate will stay low or get lower but, in the event it did increase, you would be able to cover any increase in your monthly payments

  • you think you might want to make unlimited overpayments on your mortgage to be mortgage-free quicker. The minimum overpayment is £500.

Pros
If the Bank of England base rate goes down during your mortgage term, your payments for your tracker rate mortgage will go down too.

You can also make unlimited overpayments (minimum overpayment of £500), so if you think you might have a cash lump sum later down the line or you want to pay off your mortgage much earlier than expected, you can do so without having to pay an Early Repayment Charge.

Cons
As the rate tracks above the Bank of England base rate, if the base rate increases so will your monthly payments. You need to be comfortable your budget will allow an increase in your monthly payment.

How Flexible Offset mortgages work
With a Flexible Offset mortgage your rate will track above the Bank of England base rate for the life of your mortgage term. As part of your Flexible Offset mortgage you will also get a linked savings pot. Any money you put into your savings pot is offset against your mortgage which lowers the amount of interest you pay so you could pay it off earlier. You can access your savings pot whenever you want, free of charge.

For example, if you have a £200,000 mortgage and £20,000 in the savings pot, you’ll only pay interest on £180,000.
You can access your savings pot whenever you want, free of charge.

A Flexible Offset mortgage might suit you if:

  • you have savings or expect to be able to save regularly in future

  • you don’t want to ever look for a new mortgage deal again

Pros
If the Bank of England base rate goes down during your mortgage term, your payments for your Flexible Offset mortgage will go down too.

You can also make unlimited overpayments, allowing you to pay your mortgage off quicker or reduce your monthly payments.

Providing you have money in your savings pot, you can also underpay or take a payment holiday.

You can manage your Flexible Offset mortgage using Online Banking.

Cons
As the rate tracks above the Bank of England base rate, if the base rate increases so will your monthly payments. You need to be comfortable your budget will allow an increase in your monthly payment.

Find out more

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

 

All mortgages are subject to status and our lending criteria. This means that the amount we will lend you will depend on your individual circumstances, the type of property and the amount you borrow. For example, we may require a higher deposit if you are buying a flat or a new build property.

Frequently asked questions

  • From 3rd October 2012 our SVR for Santander mortgage customers is 4.74%.

  • Interest rates change from time to time and we reserve the right to change our SVR in the future (because of either funding costs or mortgage market conditions).

  • We do not currently offer new Buy to Let mortgages through the branch or over the phone – however we do offer these through Independent Financial Advisers. If you have an existing Buy to Let mortgage and you have a query, please call us on 0845 600 3530. Lines are open 8am to 7pm Monday to Friday and 9am to 1pm Saturday.

  • We are part of the following schemes:

    • Help to Buy: mortgage guarantee

    • Help to Buy: equity loan

    • Shared Ownership

    • NewBuy

    Find out more

  • You only pay back the interest with each monthly payment so at the end of your mortgage term you still owe the amount you borrowed when you took out the mortgage.

    Most lenders insist you put a repayment plan in place for the original amount you borrowed – an investment designed to raise the money you need to pay off the initial capital at the end of your mortgage.

  • With this option you're guaranteed to pay off your entire mortgage by the end of the term, provided you don't miss any payments.
    The amount that you pay each month is made up of capital and interest and is calculated to repay all of your mortgage by the end of the term.

  • Can't find what you are looking for? Find more on the mortgages FAQs page.

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