Last updated: 30th January 2026
When you’re looking to buy a property, understanding the different types of mortgages can feel like a minefield.
I’ve spent years helping clients at Alexander Southwell Mortgages navigate these decisions and I know firsthand how important it is to find the right mortgage for your situation.
Let me walk you through everything you need to know about the various mortgage options out there so you can make an informed choice that sets you up for success.
What Are the Different Types of Mortgages?
Before we get into the nitty gritty, let’s take a step back and understand what we mean when we talk about different types of mortgages.
At its core a mortgage is simply a loan secured against your property that you’ll repay over a set term. However the way you repay that mortgage, how the interest is calculated and the flexibility you have can vary enormously.
The two main types of mortgage structure you’ll come across are repayment mortgages and interest only mortgages.
Beyond that you’ll need to choose how your interest rate is determined, whether through a fixed rate mortgage, various types of variable rate mortgage or one of several other mortgage types designed for specific circumstances. Let me break these down for you in plain English.
Fixed Rate Mortgages: Stability and Peace of Mind
A fixed rate mortgage is probably the most straightforward option and it’s become increasingly popular in recent years. When you take out a fixed rate deal you’re locking in your mortgage rate for a specific period—typically ranging from two to five years, though some lenders now offer terms of ten years or more.
The main advantage here is predictability. Your monthly payments stay the same throughout the fixed period, regardless of what happens to the Bank of England base rate or what lenders do with their interest rates. This makes budgeting so much easier especially if you’re working to a tight monthly budget.
I often recommend fixed rate mortgages to first time buyers who are still finding their feet financially or to anyone who values certainty over potential savings.
When interest rates rise you’ll be protected, your monthly mortgage payments won’t increase. But there’s a flip side. If interest rates fall significantly during your fixed term you won’t benefit from lower repayments.
You’ll also typically face an early repayment charge if you want to leave the deal before the fixed period ends.Once your fixed rate deal ends your mortgage will automatically revert to your lender’s standard variable rate (often abbreviated to SVR) which is usually higher.
That’s why it’s important to start looking for a new mortgage deal at least three to six months before your fixed term ends.
Different Types of Variable Rate Mortgage?
Variable rate mortgages work differently to fixed rate mortgages. Rather than locking you into a set interest rate these products allow your mortgage rate to change over time. Now I know that might sound risky but there are actually several different types of variable rate mortgage each with its own characteristics. Let me explain the main types.
Standard Variable Rate (SVR) Mortgages
The lenders standard variable rate is your lender’s default mortgage rate. Each bank sets their own SVR and they can change it whenever they like, though it’s usually influenced by the Bank of England base rate. You’ll typically end up on your lender’s SVR when a fixed or tracker deal ends.
SVR mortgages are more expensive than other options which is why I rarely recommend staying on one long-term. The advantage is flexibility, most lenders don’t charge exit fees or early repayment charges on their SVR so you’re free to switch to a better deal or overpay your mortgage without penalty.
Tracker Mortgages
Tracker mortgages are one of the more transparent types of mortgages available. They’re directly linked to the Bank of England’s base rate, tracking it precisely. Your mortgage rate will be the base rate plus a set percentage—for example, base rate plus 1.5%.
When the Bank of England base rate goes down so do your monthly payments. When it rises your payments increase. It’s as simple as that. A Tracker mortgage rate appeal to people who believe interest rates are likely to fall or remain stable and who are comfortable with some uncertainty in their monthly outgoings.
I’ve had clients who’ve saved considerable amounts with tracker mortgages during periods when interest rates were falling. However you need to ensure you could still afford your payments if rates rise significantly.
Discount Mortgages
Discount rate mortgages offer a reduction on the lender’s standard variable rate for a set period, usually two to three years. The discount stays the same even if the SVR changes. For example, if you have a 1% discount and your lender’s SVR is 5%, you’ll pay 4%. If the SVR drops to 4.5% you’ll pay 3.5%.
These can be a good option if you want lower initial monthly payments but you do need to be aware that you’re still exposed to rate changes. If your lender increases their SVR significantly your payments will rise even with the discount applied.
Capped Rate Mortgages
Capped rate mortgages set a maximum limit (or cap) on how high your interest rate can go during a certain period. This gives you some protection if interest rates rise, whilst still allowing you to benefit if rates fall. However many capped rate products also have a collar rate. A minimum rate below which your payments won’t drop.
I find these are less common in the current market but they can suit people who want some downside protection without completely giving up the potential benefits of falling rates.
What Are the Different Types of Mortgage Loans: Repayment vs Interest Only
Beyond the question of how your interest rate is set you also need to decide how you’ll actually repay your mortgage loan. This is where the distinction between repayment mortgages and interest only mortgages becomes important.
Repayment Mortgages (Capital Repayment Mortgage)
With a repayment mortgage, sometimes called a capital repayment mortgage, your monthly mortgage payments cover both the interest on your loan and a portion of the original amount you borrowed. Over the mortgage term you’ll gradually reduce your mortgage debt until, at the end of the term, you’ll own your property outright.
This is the most common type of mortgage and it’s straightforward. Your monthly payments are higher than they would be with an interest only mortgage but you’re making real progress towards owning your home. Most lenders prefer this arrangement and it’s certainly the lower risk option for borrowers.
Interest Only Mortgages
An interest only mortgage works differently. Each month you only pay the interest on the loan amount, you don’t reduce the capital you borrowed.
This means your monthly payments are lower but at the end of the mortgage period you still owe the full original amount.
You’ll need a credible plan to repay the mortgage at the end of the term. This might involve selling the property, using a savings plan or cashing in investments. Interest only mortgages are particularly common with buy to let mortgage arrangements where landlords often plan to sell the property to clear the debt or may be building a savings account or investment portfolio alongside.
These days lenders are much stricter about who they’ll offer an interest only mortgage to. You’ll typically need a substantial deposit, a strong credit history and a solid repayment strategy. I wouldn’t recommend going interest only unless you genuinely have a robust plan in place, the last thing you want is to reach the end of your mortgage term and not be able to pay off what you owe.
Specialised Mortgage Options for Different Circumstances
Beyond the main types of mortgages I’ve covered there are several specialised options for particular circumstances or needs. Let me highlight a few that might be relevant to your situation.
Offset Mortgages: Make Your Savings Work Harder
An offset mortgage links your savings account to your mortgage. Instead of earning interest on your savings you use them to reduce the mortgage balance on which you pay interest. For example if you have a £200,000 mortgage and £20,000 in savings you’ll only pay interest on £180,000.
You can still access your savings whenever you need them but while they’re in the linked account they’re helping to reduce your monthly interest charges. This can be particularly tax efficient if you’re a higher rate taxpayer since you’re avoiding tax on savings interest whilst reducing your mortgage costs.
Offset mortgages typically come with slightly higher rates than standard products so they work best if you have substantial savings to offset against your mortgage debt.
Flexible Mortgages: Control Your Repayments
Flexible mortgages allow you to overpay, underpay or even take payment holidays (subject to certain conditions). This can be incredibly useful if your income fluctuates, perhaps you’re self-employed or work on commission.
You might overpay during busy periods to build up a reserve then reduce your payments or take a payment holiday if things get tighter. Just be aware that any payment holidays or underpayments will extend your mortgage term unless you make up the difference later.
Buy to Let Mortgages: For Landlords and Investors
If you’re looking to buy a property to rent out rather than live in you’ll need a buy to let mortgage. These work differently from residential mortgages. Lenders will assess your application based on the rental income the property will generate rather than your salary.
Most lenders want the rent to be at least 125% of your mortgage payments to ensure you can cover your monthly mortgage obligations even if there are void periods. Buy to let mortgages usually require larger deposits—often 25% or more of the purchase price.
Many landlords opt for interest only arrangements with buy to let mortgages, keeping monthly outgoings low whilst building equity as property values rise.
Joint Mortgages: Sharing the Burden
A joint mortgage allows more than one person to take out a mortgage together. This is most commonly used by couples but you could also apply with family members, friends or business partners.
The advantage of a joint mortgage is that lenders consider the combined income of all applicants which may allow you to borrow more than you could on your own. However everyone named on the mortgage is equally responsible for the monthly repayments so you need to be confident in your co-applicants’ financial reliability.
Shared Ownership Schemes: Getting on the Ladder
Shared ownership schemes help people who can’t afford to buy a property outright to get onto the housing market. You purchase a share of a property (typically between 25% and 75%) and pay rent on the remaining portion.
Over time you can increase your share through a process called staircasing, potentially eventually owning your home outright. You’ll need a mortgage to cover your initial share and later if you want to buy additional shares.
What Are the Different Types of Mortgage for First Time Buyers?
If you’re buying for the first time the good news is you’ll have access to all the main types of mortgages I’ve covered plus some schemes specifically designed to help first time buyers get started.
95% Mortgages: Lower Deposit Options
Also known as 5 deposit mortgages 95% mortgages allow you to borrow up to 95% of the property value, so you only need a 5% deposit. These can be a lifeline if you’re struggling to save a larger deposit, though you’ll typically pay a higher interest rate and face a higher risk if property values fall.Several high street lenders offer 95% mortgages and there have been various government backed schemes over the years to support this type of lending. The key is to ensure you can genuinely afford the monthly mortgage payments which will be higher with such a large loan amount relative to the property value.
Help to Buy Mortgages and Schemes
Various Help to Buy schemes have operated in recent years though availability and terms change regularly. Typically these involve the government providing an equity loan to reduce the amount you need to borrow from a mortgage lender.
If you’re a first time buyer it’s worth checking what schemes are currently available as they can make a real difference to your deposit requirements and borrowing capacity. I always recommend getting professional advice to help you find the most suitable mortgage deals for your specific circumstances.
How Interest Rates Work Across Different Mortgage Types
One thing that often confuses people is how interest rates actually work across the different types of mortgages. Let me try to clear this up.
With a fixed rate mortgage your lender’s interest rate is locked in for the agreed period. It doesn’t matter what happens to the Bank of England base rate or the wider mortgage market—you’re protected from increases but also can’t benefit from decreases.
When you move to variable rates things get more fluid.
With tracker mortgages your rate moves in direct proportion to changes in the Bank of England base rate. With discount rate mortgages you’re always a set amount below your lender’s SVR. And with the standard variable rate itself your lender sets the rate based on various factors including (but not limited to) the base rate.
Understanding these mechanics matters because it affects not just your monthly interest charges but your entire financial plan. When interest rates rise those on variable rate products see their monthly budget squeezed immediately. When rates fall they benefit straight away.
It’s also worth knowing that while you pay interest on the full loan amount with a repayment mortgage initially, over time you’re paying interest on a reducing balance as you chip away at the capital. With an interest only mortgage you’re always paying interest on the full original amount which means you’ll pay significantly more in total interest over the mortgage period.
What to Consider When Choosing a Mortgage
So with all these different types of mortgages available how do you actually choose the right one for your situation? Here are the key factors I always discuss with clients.
Your Financial CircumstancesYour income, outgoings, deposit size and credit score all play a crucial role in determining which types of mortgages you’ll be eligible for and which ones make financial sense. If your income is variable you might value the flexibility of certain mortgage types. If it’s steady you might prefer the certainty of a fixed rate deal.
Your Risk Tolerance
Some people sleep better knowing exactly what their monthly mortgage payments will be for the next five years. Others are comfortable with uncertainty in exchange for potentially lower costs. There’s no right answer—it depends on your personality and financial situation.
If you’re stretching to afford your mortgage payments at current rates a fixed rate mortgage might be essential to protect you from rate increases. If you have plenty of headroom in your budget you might be comfortable taking on more variable risk.
Your Plans for the Property
How long do you plan to stay in the property? If you’re likely to move or remortgage within a few years paying for a long fixed term might not make sense. Similarly the early repayment charge structure of different mortgage deals should factor into your decision if you think you might want to pay off your mortgage early or move home before the term ends.
The Current Market Conditions
Where interest rates are now and where they’re likely to go should influence your choice. If rates are at historic lows and expected to rise locking into a long fixed rate deal could save you a lot of money. If rates are high and expected to fall a shorter fixed term or a tracker mortgage might make more sense.
Of course predicting interest rate movements is notoriously difficult which is why I always stress the importance of choosing a mortgage you can afford even if rates move against you.
Other Costs and Fees to Consider
When comparing different mortgage types and deals don’t focus solely on the interest rate. There are various other fees that can add up to a significant amount.
Arrangement fees (also called product fees or booking fees) can range from nothing to several thousand pounds. Some lenders allow you to add these to the mortgage though this means you’ll pay interest on them over the full term.
Valuation fees cover the lender’s property assessment.
Exit fees might apply when you pay off your mortgage. And early repayment charges, usually a percentage of the outstanding loan, can be substantial if you leave a fixed or discounted deal before it ends.
I’ve seen cases where a mortgage deal with a slightly higher interest rate but lower fees works out cheaper overall than one with a rock-bottom rate but eye-watering charges. A mortgage calculator can help you work out the true cost but this is where professional advice from an experienced mortgage broker really pays off.
Next Steps
Now you understand the main types of mortgages available, from fixed and variable rate options to repayment and interest only structures and from standard residential mortgages to specialized products for different circumstances—you’re in a much stronger position to start your mortgage journey.
Remember finding the best mortgage isn’t just about getting the lowest rate. It’s about finding the right deal that suits your needs, fits your financial situation, gives you the flexibility or certainty you require and helps you achieve your long term goals, whether that’s owning your own home outright, building a property portfolio or anything in between.
Frequently Asked Questions
What is one advantage of fixed rate mortgages?
A fixed-rate mortgage offers the advantage of predictable monthly payments, which makes budgeting a breeze. You’ll always know what to expect without worrying about fluctuations in your payment amount.
What happens to variable rate mortgages over time?
With variable rate mortgages, your monthly payments can change as interest rates fluctuate, which means they might increase or decrease over time.
It’s essential to stay aware of market trends to avoid surprises in your budget.
What is a tracker mortgage?
A tracker mortgage follows a specific interest rate, typically the Bank of England base rate, plus a set percentage for a defined period. This means your payments can change as the base rate fluctuates, potentially saving you money when rates drop!
Check out our 2 Year Fixed Rate VS 5 Year Fixed rate page to give you a best understanding of what products to take.
The Importance of Getting Professional Mortgage Advice
I’ll be honest with you: the mortgage market is complex. There are hundreds of lenders offering thousands of different mortgage deals, each with their own criteria, rates and terms.
What suits one person perfectly might be entirely wrong for another.
That’s where we come in at Alexander Southwell Mortgages. We have access to deals from across the market and we understand the nuances of how different lenders assess applications. We can help you find suitable mortgage deals that match your circumstances, guide you through the application process and ensure you understand exactly what you’re signing up for.
Whether you’re a first time buyer getting your foot on the property ladder, looking to remortgage your current home, moving home or expanding your property portfolio with a buy to let purchase the right advice can save you thousands of pounds and years of unnecessary worry.
We can help you with all your mortgage and protection needs, get in touch with our mortgage brokers today.
