Repayment Mortgages

With a repayment mortgage, you gradually pay back the money you’ve borrowed each month, along with the interest on the remaining balance. By the end of the mortgage term, you will have fully repaid the loan. The amount you still owe is known as the “capital,” which is why repayment mortgages are sometimes referred to as “capital and interest” mortgages.

Interest-Only Mortgages

With an interest-only mortgage, your monthly payments only cover the interest on the loan – not the loan itself. This means your monthly payments are lower, but the principal balance of the loan remains unchanged. At the end of the term, you must repay the full loan amount in one lump sum. Many people with interest-only mortgages choose to invest in a separate investment product that they plan to use to pay off the mortgage at the end of the term.

Fixed Rate Mortgages

A fixed rate mortgage guarantees that your interest rate will stay the same for a set period, such as 2, 3, or 5 years. After this period, your rate will change, and you’ll have the option to remortgage to a new fixed deal. If you don’t remortgage, your lender will move you onto their Standard Variable Rate (SVR).

Alternatively, some mortgages offer a fixed rate for the entire term, meaning your interest rate stays the same throughout the life of the mortgage. 

Standard Variable Rate (SVR) Mortgages

SVR is the default interest rate set by your lender, without any special offers or deals. Each lender can set and adjust their SVR at their discretion. Once any introductory deal expires, many borrowers are switched to the lender’s SVR, which may not be the most competitive rate.

Discounted Rate Mortgages

With a discounted rate mortgage, you receive a discount on the lender’s SVR for a set period. Since this is a type of variable rate mortgage, your monthly payments can change if the lender adjusts their SVR.

Tracker Mortgages

Tracker mortgages are another form of variable rate, where your interest rate is linked to a specific benchmark, such as the Bank of England base rate. The lender then adds a fixed margin on top of that rate. If the base rate rises or falls, so will your interest rate.

Capped Rate Mortgages

Capped rate mortgages are variable rate loans with a limit on how high the interest rate can go. While these provide some protection from rate increases, they typically come with a higher interest rate than a tracker mortgage. These types of mortgages are less common nowadays.

Flexible Mortgages

Flexible mortgages allow you to overpay, underpay, or even take a payment holiday (miss a few monthly payments) if needed. In exchange for this flexibility, you’re usually charged a higher interest rate. One type of flexible mortgage is the offset mortgage (explained below).

Offset Mortgages

An offset mortgage allows you to use your savings to reduce the interest you pay on your mortgage. You link a savings or current account with your mortgage lender to your mortgage. For example, if you have £10,000 in savings and £100,000 remaining on your mortgage, you only pay interest on £90,000 (£100,000 – £10,000).