There are many different mortgages available, so it's a good idea to get an understanding of how they all work to ensure you get the right deal for you.

Repayment mortgage

This is a typical way all mortgages work. Over the term of your mortgage, you pay back the amount you've borrowed (the capital) along with the interest every month. At the end of the term, you'll have paid everything that's owed and own your home outright.

Who does it suit?

Those who want to be certain their house will be paid for in full at the end of the mortgage.

Interest-only mortgage

With an interest-only mortgage, you don't pay off any of the capital, only the interest, so your monthly payments will be lower. At the end of the mortgage term, however, you must pay the full balance off. These types of mortgages usually require a larger initial deposit.

Who does it suit?

Those who want lower monthly payments, but can be sure of having enough money to cover the loan at the end of the mortgage.

Fixed rate mortgages

No matter what happens to interest rates generally, the interest rate on your mortgage will stay the same if you take a fixed rate deal. It's possible to get a fixed rate up to 10 years, but typically they run from one to five years.

Who does it suit?

Those who like an exact budget. If you choose a fixed rate, you'll have the security of knowing what your monthly payment will be over a set amount of time.

Standard variable rate mortgages

All lenders have a standard variable rate (SVR) basic mortgage and set their own rate, based on several factors, not solely the Bank of England base rate. If the lender increases the rate, you'll pay extra, but it will go towards the interest rather than the capital, so higher payments wouldn’t mean you'd pay your mortgage off any quicker.

Who does it suit?

When your current deal comes to an end, you'll automatically go onto the lender's SVR, unless you remortgage. SVR mortgages tend to be more flexible if you’re planning on moving to a new house or remortgaging soon, as you’re unlikely to face any early repayment charges.

Discount rate mortgages

Discount rate mortgages typically offer a discount off a lender's standard variable rate for a set period (two or three years, but there are some that offer lifetime options). Much the same as an SVR mortgage, discount rate mortgages are often flexible and generally don't have an Early Repayment Charge.

Who does it suit?

The rate can change at any time, so this is for those who think that interest rates are going to stay low, but can afford more if the rates go up.

Tracker mortgages

A tracker mortgage is a type of variable mortgage. The interest rate on these mortgages is linked to (or ‘tracked’ to) the Bank of England base rate. So, if the base rate changes, so does your mortgage rate. Most lenders fix a minimum rate and your interest rate couldn't drop below this. However, there's no limit to how high the rate can go.

Much like fixed rate mortgages, tracker mortgages are available over different terms – typically two or five years.

Another type of tracker is the Lifetime tracker. It's often penalty free, so a good option if you don't want to be tied into a fixed term.

Who does it suit?

If you want a low rate of interest, tracker mortgages are generally good. However, you need to be sure you can afford to pay more if rates go up.

Capped rate mortgages

A capped rate mortgage is a variable rate one, however, it has an upper limit on how high your interest rate can rise. The rate you pay moves in line with either SVR or base rate, but the upper cap gives you more protection.

Who does it suit?

Capped rates are good for those who want to benefit from low interest rates, but worry about the rate soaring in the future.

Offset mortgages

An offset mortgage is linked to a savings account within the same bank or building society. Your savings are then used to reduce – offset - the mortgage balance you pay interest on. You still make the usual repayment every month, but your savings are used as an overpayment, helping you clear the mortgage earlier.

Who does it suit?

Offset mortgages are good for those who have a good amount of savings – particularly higher-rate taxpayers – and want to pay down their mortgage quicker.

Flexible mortgages

These types of mortgages give you much more flexibility with making repayments. You can choose to pay back more when you can and, if you have overpaid in the past, you can pay less. Some lenders will even allow you to take a payment holiday and miss a few payments. The rate on these mortgages are higher than others.

Who does it suit?

Those who have a less regular income or suspect they may have financial difficulties in the future.

95% mortgages

These mortgages are for those who can only afford a smaller – 5% - deposit. Because of the lower deposit, you could be at risk of falling into negative equity should house prices fall, so the lenders will deem this a risk and typically the rates on these mortgages are higher.

Who does it suit?

Buyers who are struggling to save a deposit and want to get onto the housing ladder

Guarantor mortgages

Guarantor mortgages are where a parent or family member acts as the guarantor for the loan. This means that if you aren't able to make the monthly repayments, your guarantor will need to cover them. You can often borrow up to 100% of the property's value with a guarantor mortgage.

Who does it suit?

Those with no deposit, bad credit history, or low income.

Cashback mortgages

Really more of a feature than a mortgage, lenders will offer to give you money back when you take out their mortgage – typically a percentage of the loan.

Who does it suit?

Those who would like a lump sum of cash for moving home.

Mortgage calculator

Get instant results with our free mortgage calculator. Work out which mortgage would be best for you and how much you could afford to borrow.

read our useful guide to getting your dream home. 

View all articles

Share this story