When you compare different types of mortgages, the names can make the choice seem harder than it is. The useful questions are how you’ll repay the loan, whether your payments could change and how the deal fits your plans.
Breaking those choices down helps you look beyond the headline rate and compare the costs and flexibility that matter to you.
Four choices that shape your mortgage
REPAYMENT
How you repay the borrowing
Monthly payments can reduce the loan balance or cover interest only, leaving the loan amount to repay later.
RATE
How your interest rate behaves
Your rate may stay fixed for an agreed period or change, affecting your monthly payments.
TERM
How long the borrowing lasts
The mortgage term is the full borrowing period, not just the length of your first deal.
FLEXIBILITY
What you can change later
Overpayment limits, exit charges and moving-home plans all help shape which mortgage fits.
How mortgage types work together
The main types of home mortgage in the UK describe different parts of the same loan. Repayment and interest-only describe how you pay it back; fixed and variable describe the interest rate. First-time buyer and buy-to-let describe your circumstances or the property’s use.
For example, a first-time buyer could take out a repayment mortgage with a five-year fixed rate.
WORTH KNOWING
A five-year fix does not mean you repay the mortgage in five years. You could have a 30-year mortgage term, with the initial rate fixed for the first five years.
How you repay your mortgage
The two main mortgage repayment types differ in whether your regular payments reduce the amount you owe.
Repayment mortgages
With a repayment mortgage, your monthly payments cover capital and interest. Capital is the money you borrowed, so each payment reduces what you owe. As long as you make all required payments, you’ll clear the mortgage by the end of the agreed term.
Interest-only mortgages
With an interest-only mortgage, you only pay interest each month, so these payments do not reduce the loan. You need a credible repayment strategy that your lender accepts to clear the balance at the end.
For the same loan amount, rate and term, monthly payments are lower than with repayment. However, the capital still needs funding separately, so a lower payment does not mean a lower overall cost.
Illustrative example: you borrow £200,000 on interest-only terms. Without any capital repayments, you still owe £200,000 at the end of the term.
How mortgage interest rates work
Once you know how you’ll repay the loan, consider how steady you need your monthly payments to be. Mortgage rates are either fixed or variable.
Fixed-rate mortgages
Fixed-rate mortgages keep your rate unchanged for a set deal period, often two or five years. This gives you predictable payments and protects you from rate rises during that period. However, you won’t benefit from interest rates falling during the deal. An early repayment charge may apply if you leave before it ends.
Variable-rate mortgages
With variable-rate mortgages, the interest rate can move up or down. The main differences lie in who sets it and what it follows.
Tracker mortgages
Tracker mortgages usually follow the Bank of England base rate plus a stated margin. Your rate and payments can rise or fall with it, although some deals set a minimum rate, known as a collar. Check the product’s conditions.
Discount-rate mortgages
Discount-rate mortgages charge a set amount below the lender’s standard variable rate (SVR). Your rate moves when that SVR changes, not necessarily whenever the base rate changes.
Standard variable rate mortgages
The standard variable rate is a rate the lender sets. You commonly move onto it when an initial deal ends unless you arrange another deal. It can be more expensive, although there are usually no early repayment charges.
Compare the main rate options
Rate type
What to compare
Fixed
Rate: Unchanged for the deal period.
Benefit: Stable payments. Consider: Early repayment charges may apply; rate cuts will not reduce your fixed rate.
Tracker
Rate: Follows a reference rate.
Benefit: Payments can fall. Consider: Payments can also rise; conditions apply.
Discount
Rate: A discount from the lender’s SVR.
Benefit: Below that lender’s SVR. Consider: The lender can change its SVR.
SVR
Rate: Set by the lender.
Benefit: Usually no early repayment charge. Consider: The rate can change and may be higher than other deals.
What could your monthly payments be?
Explore indicative borrowing and monthly repayments.
Other mortgage arrangements to know
Offset mortgages
Offset mortgages link eligible savings to your loan, reducing the balance used to calculate mortgage interest. Your savings normally earn no interest in return, so compare the mortgage saving with what your cash could earn elsewhere. Product terms vary, including how the interest saving affects your payments or mortgage term.
Illustrative example: with a £200,000 mortgage and £20,000 in linked savings, you pay mortgage interest on £180,000. The savings do not pay off the loan; withdrawing them increases the balance used to calculate interest.
Joint mortgages
A joint mortgage has more than one borrower. Combining incomes can help support the application, but lenders assess everyone’s finances. Each borrower is responsible for the whole debt, not just an agreed personal share.
Mortgages for different borrowing needs
Your circumstances affect which mortgage lenders and deals you can use. However, the same repayment methods and rate options can still apply.
When buying your first home or moving home, your deposit or equity and income help shape the options. With shared ownership, your deposit and mortgage fund the share you buy, with rent and other costs to budget for.
A remortgage moves your loan to a new lender on the same property. Taking a new deal with your current lender is generally a product transfer.
Buy-to-let mortgages fund rental property, where lenders assess the rent as well as other criteria.
If you are self-employed, the difference is how you prove your income, not a separate interest-rate type. Lenders can assess the same earnings in different ways, so finding one that understands your income can be important.
How to compare your mortgage options
Once you understand the labels, compare each deal against your budget and plans rather than choosing by rate alone.
Payments now and in the future
Allow room for higher interest rates. A longer repayment term can reduce monthly payments, but usually increases total interest paid.
The cost beyond the headline rate
Compare mortgage deals over the same period, including product fees and other charges. A lower rate is not always cheaper overall. Adding fees to the loan also means paying interest on them.
Flexibility when your plans change
Check the deal period, overpayment limits and early repayment charges. Moving home or repaying a lump sum could make these conditions especially important. A portable deal may move with you, but your lender must approve the new property and application.
Whether the lender fits your circumstances
Check income, spending, credit history and property requirements. Meeting a deposit threshold alone does not confirm that you can borrow the amount needed.
How Muttuo can help
Muttuo compares options from 100+ lenders across the market. We’ll help you choose a mortgage that suits your budget and plans, then guide you through your application.
Compare payments, fees and flexibility together
Check lender criteria against your circumstances
Understand your options before you apply
Find a mortgage that fits you
Talk through the choices with an adviser who can explain what they mean for you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Your questions about mortgage types answered
What happens when a fixed-rate deal ends?
You usually move onto your lender’s standard variable rate unless you arrange another deal. Review your options before the end date, allowing time to compare costs and arrange any switch.
Can I change my mortgage type?
You can ask to change your rate or repayment method, but approval depends on the lender and your circumstances. Affordability checks, product fees or early repayment charges may apply.
Which mortgage type suits a first-time buyer?
The right choice depends on your budget, deposit and plans. A repayment mortgage reduces the amount you owe, while a fixed rate keeps payments steady during the deal period.
