Bad Credit Mortgage Types


Types of Mortgage Loans

Do you have bad credit? Many people aren’t sure if the same range of mortgages are available if they have bad credit history.

Read on to discover the different types of mortgages and interest rates you might be able to get if you do. You may even be able to get a buy to let or first-time mortgage - even with a limited deposit or a really bad credit score.

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So what are the different types of mortgages available?

Whether you’re a first-time buyer, need a buy to let mortgage or are looking to re-mortgage with bad credit, it can seem to be nothing short of impossible, as many high street lenders won’t consider you.

But don’t despair.

It doesn’t necessarily mean there’s no chance of securing a bad credit mortgage in the UK. That said, it can be very complicated, so speaking to a specialist bad credit mortgage broker is advisable.

What are the different types of mortgage?


If you’ve had poor credit in the past, it’s important to make the right choice for the future.  Sure, a mortgage broker usually handles most things when it comes to securing the best type of mortgage deal. But, it’s always handy to know the meaning of the jargon they use when you speak to them.  

So, without further ado, let’s look at the mortgage types in the UK today.

Types of Payment

What types of mortgages are there? There are two key categories when it comes to mortgage repayment - either repayment or interest-only. Have a look below to discover mortgage repayment types. It’s worth noting that hardly any interest-only mortgages exist these days. You’ll most likely take out a repayment mortgage - unless it’s a buy to let.   We’ve listed the types of mortgage interest rates below.

Repaying the mortgage

Repayment

When it comes to types of conventional mortgage loans, most homeowners have a repayment mortgage. Basically, each month you pay back both the interest and your original mortgage loan itself. After around 25 years at the end of the mortgage term, you’ll most likely have paid off the total cost of the mortgage loan (the capital).  

At the start of paying off a repayment mortgage, almost all your monthly costs will go towards settling the interest. But don’t be alarmed, this is because the interest is worked on a front loaded basis and on the outstanding balance of the loan. As time goes on, your payments will go towards even more of the loan every month.  

Interest Only

The clue is in the name. You merely pay off the interest on your loan. While your monthly payments are a lot lower, you’re still required to pay back the entire loan once your mortgage term comes to an end.  

The main idea behind this type of mortgage is that monthly payments are less than repayment mortgages.  

Hardly any homeowner mortgages are interest only, they are mainly for buy to let mortgages.

Types of Interest/Repayment

Did you know there are many different types of mortgage loans in the UK? When it comes to purchasing a property, you may believe your only option is a 25-year, fixed rate mortgage. Happily, there are more than enough choices out there.  

Essentially, mortgage interest rates are designed at either a fixed or variable rate. Though, the rates for variable rate mortgages are worked out differently in line with the type of deal you have.  

Here are the different types of mortgage rates below – some are common and some less so.  

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Mortgage Types Explained

Before we get into the nitty gritty of all the types of mortgages, it’s important to know about bank base rates, as they can affect your mortgage. The bank base rate is the interest rate that a central bank – normally the Bank of England – will charge commercial banks for loans.

Mortgage types explained

Fixed Rate

This type of mortgage is fixed for an agreed amount of time. Generally, fixed rate mortgages are set for roughly two to five years. If you decide to take out this type of mortgage for a longer period of time, interest rates are usually much higher.  

Once the length of your fixed deal has finished, the interest rates return to the lender’s standard variable rate (SVR). This rate is normally several percent higher than the Bank of England base rate. The best option here is to re-mortgage to a new lender or assess options with your current lender and transfer to another product at this stage to get a better deal.  

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Standard Variable Rate

Banks Standard Variable Rate (SVR)

As the name suggests, this type of mortgage involves the interest rate to go up or down. The main trigger for this is changes to the UK economy. The interest rates are affected by the Bank of England’s base rate. But this is very much dependent on the kind of variable rate mortgage you’ve taken out. 

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Tracker Rate Mortgages

Tracker Rate

This is another type of variable rate mortgage where the rate is influenced by the Bank of England. It’ll be set at a certain point over or under this designated rate. This is where the term ‘tracker’ comes from. Tracker mortgages follow – or track – an external interest rate, usually set by the Bank of England.  

For instance, if your tracker mortgage is the base rate +2%, and the base rate is 1%, you’ll pay 3%. If the base rate increases to 2%, you’ll pay 4%.

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Discount Mortgages

Discount

Another of the different types for variable mortgages in the UK are those of discount mortgages. This is where the interest rate is fixed at a set rate below the lender’s standard variable rate (SVR) for either a set period (e.g. two to five years) or for the length of your mortgage.  

For example, if the lender’s current SVR is 4.50% and you’re offered a discount of 2% over two years, you’ll begin with an interest rate of 2.50%. But, if the lender alters their SVR, your rate will alter as well.

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Capped Mortgages

Capped

Capped rate mortgages are a type of variable rate mortgage. But there’s a difference: they have an interest rate ceiling – or cap – beyond which your interest can’t increase. You won’t find many capped rate mortgages about these days.

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Offset Mortgages

Offset

Offset mortgage types work to either aid you in cutting down monthly payments or shorten the term, so you become mortgage-free, faster.  

They can be either fixed rate or variable but the key thing that sets them apart is that your savings are used to ‘offset’ a little of the interest you pay on your mortgage loan.  

For instance, if your mortgage balance is £170,000 but you have £30,000 of savings, you’ll just be charged interest on a loan amount of £140,000.

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Fees vary according to individual circumstances and we will agree our fees with you before we undertake any chargeable work. This fee is for advice, research, recommendation, implementation (e.g. application, administration of arranging the loan). We will also be paid by commission from the lender.

Our typical broker fee is £1995. We typically charge up to 6% of the loan amount, dependent upon the severity of adverse credit and the lender being used. For example, on a loan of £100,000 we would charge up to £6000.

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Our fee is payable upon receipt of your mortgage offer, we do not charge any upfront fee for identification of any potential solutions.

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The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK.

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Disclaimer

All content on the Simply Adverse website is believed to be accurate at the time of publication. However, this is a fast-moving sector and lender criteria and policies change regularly. For this reason, we always recommend that you speak to one of our brokers for the most up to date information.

Articles can only ever provide general information and do not constitute financial advice. Our mortgage brokers are fully regulated by the Financial Conduct Authority, and it is only by speaking to them that you will receive advice and information tailored to your individual circumstances. Your home may be repossessed if you do not keep up with repayments on your mortgage.

You should always think carefully, and seek professional advice, before securing other debts against your home or releasing equity from your home.

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