There are many different types of mortgages available. Each one is simply a different way of borrowing money to fund your house purchase or remortgage. The range of mortgages available in the market means you are likely to find one suitable to your needs.
As a major building society, Skipton will offer, from time to time, all or some of the mortgage types highlighted below or a combination of them. All of our mortgages come with a number of additional benefits which are highlighted in the section 'Other benefits explained'. Our mortgage advisers will be happy to offer you any help you need.
In general, mortgage lenders have the following product types:
The section below describes how these different mortgage types work. Please refer to The Skipton Mortgage Guide (pdf) to see which options Skipton currently has available and for details of our rates.
Fixed Rate Mortgages
The monthly interest rate will stay the same for a set period of time. At the end of the fixed rate period your rate will usually change to the variable rate.
PROS
You are guaranteed that your rate will be exactly the same every month for the duration of the fixed rate period – even if variable interest rates rise during this time. You can confidently plan your budget for the whole period, because you’ll know in advance exactly what your major outgoings will be.
CONS
If variable interest rates fall during the fixed rate period, then the amount you pay during this time may be higher than if you had chosen a mortgage type where the interest rate is allowed to rise and fall, such as tracker or discounted rate.
Variable Rate Mortgages
The 'variable' rate means either the lender's standard variable rate (SVR) or those rates which track an external rate (such as the Bank of England base rate or LIBOR) or tracker rates. 'Variable' means the rate can go up and down.
PROS
The rate you pay may fall if mortgage rates in the market fall - this means your payments may go down. A variable rate without any special incentives may allow you to repay some or all of your loan without having to pay early repayment charges.
CONS
Your payments may increase if mortgage rates rise. So unless you can afford increases in your payments, you may be better off with a mortgage where the rate is fixed for a period of time (giving you time for your income or earnings to increase).
Capped Rate Mortgages
Your payments are linked to a variable rate which means that payments may go up or down - but the amount the rate can rise to is restricted to an upper limit (known as the 'cap') for a set period of time. Some mortgages also stipulate that the rate you pay cannot fall below a lower limit (known as a 'collar' or 'floor'). At the end of the cap (and/or collar) period you are usually charged at the variable rate.
PROS
These mortgages provide certainty that the variable rate you pay will not rise above the cap. This means you are protected from significant rises in variable rates. This will help you to budget. In addition, you will be able to enjoy a lower rate if interest rates fall. Some mortgages also stipulate that the rate you pay cannot fall below a lower limit (known as a 'collar' or 'floor').
CONS
May not be as beneficial as a fixed rate mortgage if rates rise, as the cap level is often higher than a fixed rate. For example, if the variable rate rises to the cap level and remains at this level for a significant period of time, then a fixed rate mortgage may have been better value. If the mortgage has a 'collar' or 'floor', this may restrict the amount by which your payments could reduce if interest rates fall.
Discounted Rate Mortgages
Your payments are based on a discounted rate set at a certain level below a specified variable rate for a set period of time, which means your payments may go up or down. For example, a 1% discount for 12 months off a variable rate of 5% would mean a pay rate of 4% for 12 months. Sometimes these discounts are stepped over a period of time, for example, a discount of 2% in year one followed by a discount of 1% in year two. After the set period the variable rate usually applies.
PROS
Provides you with lower payments in the early years to help with the cost of moving or setting up in your new home. Also the rate you pay may fall if mortgage rates in the market fall - meaning your payments may go down. A discount that gradually reduces means you do not usually face a significant increase in payments when the discount period ends. Also the rate you pay may fall if mortgage rates in the market fall - meaning your payments may go down.
CONS
If interest rates rise whilst you are on a discount, your payments may increase.
Cashback Mortgages
You receive a single lump sum or cash amount sometimes based on the value of your loan at the time you take out your mortgage. For example, on a £100,000 mortgage with a 3% cashback, you will receive £3,000. Your monthly payments may be linked to a variable or fixed rate.
PROS
It means money in your pocket at a time you may need it most. It can provide you with a very useful contribution to the cost of moving, or helping you pay for the decorating and refurbishment work you may have planned for your new home.
CONS
Because of the lump sum you receive at the start of your mortgage, your rate may not be as attractive as other mortgages without cashback. The cashback you receive is not usually available to use as a deposit on your mortgage, as it is only normally available after you complete.
Tracker Mortgages
Your interest rate is directly linked to an independent rate, such as the Bank of England base rate or the 3-Month LIBOR (the London Interbank Offered Rate) for a set period of time. For example, your rate may be 0.5% over the Bank of England base rate for a period of three years.
PROS
Your rate will reflect the independent rate being tracked. This means when the independent rate falls, you are guaranteed to benefit from the rate reduction in full.
CONS
If the independent rate rises, your rate will automatically rise so you may find you are paying a rate which is higher than other variable rates.
Note: For Skipton Base Rate Tracker Mortgages, the Bank of England Base Rate (BoEBR) will be treated as having a floor of 3% and no lower rate will be used as a basis to calculate your pay rate.
Example: if the BoEBR dropped to 2.75% your new pay rate would be the floor of 3% plus the differential rate of 1.50% (for this example), which would equal a pay rate 4.50%.
If there is a change to BoEBR during your product pay rate period, your new rate will become effective 15 days after the base rate change.
All rates quoted assume that the borrower is eligible for the 0.25% Direct Debit discount.