Types of Mortgages Explained
Explore the different types of mortgages available in the UK, how they work, and what factors can affect your mortgage options, explained in plain English.
Types of mortgages and mortgage basics, clearly explained
Understanding the different types of mortgages does not have to mean working through complicated financial terminology. Start with the basics and build your understanding step by step.
Your mortgage options can depend on factors such as your deposit, income, property value, credit history and the type of mortgage you are looking for. Understanding these differences can help you compare suitable options more confidently.
Once you understand the fundamentals, you can explore more specific guides for first-time buyers, remortgaging, self-employed applicants and other situations.
Answer a few questions about your circumstances and request a mortgage quote. Your enquiry can then be reviewed based on the information you provide.
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What should you understand before choosing a mortgage?
These are some of the main areas borrowers commonly need to consider.
How much can I borrow?
Mortgage affordability can depend on income, regular commitments, deposit, credit history and lender criteria.
How much deposit do I need?
The deposit affects the amount you need to borrow and can also affect your loan-to-value position.
What interest rate will I pay?
Mortgage rates vary between products and circumstances. Understanding fixed and variable rates is an important starting point.
How long should my mortgage term be?
The mortgage term affects the monthly payment and the overall amount of interest paid over the life of the mortgage.
Does my credit history matter?
Your credit history can be one factor considered by lenders when assessing a mortgage application.
Which mortgage type is suitable?
Different mortgage products have different features, rates and conditions, so understanding the differences is useful.
Different types of mortgages explained
There are different types of mortgages available in the UK, and each can work differently depending on its interest rate, features and terms. Understanding the main mortgage types can help you know what to look for when comparing your options.
Fixed-rate mortgage
Your interest rate remains fixed for an agreed period. This can make your mortgage payment more predictable during the fixed-rate period.
Variable-rate mortgage
The interest rate can change over time. The exact way it changes depends on the mortgage product and its terms.
Standard Variable Rate (SVR)
An SVR is a variable rate set by a lender. It can change, meaning monthly mortgage payments may also change.
Tracker mortgage
A tracker mortgage normally follows a specified reference rate, often the Bank of England base rate, with the mortgage rate moving according to the product's agreed structure. Your monthly payments can therefore rise or fall as the relevant rate changes.
Discounted-rate mortgage
A discounted mortgage offers a reduction from a lender's variable rate for a specified period, subject to the product's terms.
Offset mortgage
An offset mortgage can link savings to your mortgage balance when calculating interest, depending on the product's structure.
Cashback mortgage
Some mortgage products provide cashback subject to specific terms and conditions. The wider cost of the product should also be considered.
Interest-only mortgage
With an interest-only mortgage, monthly payments cover the interest rather than reducing the capital balance during the agreed period.
What can affect your mortgage options?
Income
Your income and regular financial commitments can be important when assessing affordability.
Deposit & LTV
The relationship between the property value and amount borrowed is commonly expressed as loan-to-value, or LTV.
Credit profile
Your credit history may influence which mortgage products and lenders are available to you.
Property
The property type, value and intended use can affect the mortgage options that may be considered.
Mortgage term
A longer or shorter mortgage term can change the monthly payment and total interest payable.
Your circumstances
Employment type, existing borrowing and your wider circumstances can all be relevant to a mortgage assessment.
Mortgage in Principle, brokers and buy-to-let
Once you understand the main types of mortgages, it is useful to know about the other steps and terms you may come across when exploring a UK mortgage.
What is a Mortgage in Principle?
A Mortgage in Principle, also called an Agreement in Principle or Decision in Principle, is an indication from a lender of how much you may be able to borrow based on information available at that stage. It is not a formal mortgage offer and the final amount and approval can depend on a full application and lender checks.
What is a mortgage broker?
A mortgage broker can help you understand and compare mortgage options from lenders or products available through their service. The range of mortgages a broker can access depends on the broker's panel and business model, so it is important to understand how they work before using their service.
How does a buy-to-let mortgage work?
A buy-to-let mortgage is designed for property purchased with the intention of letting it to tenants. Lenders can assess expected rental income as well as other financial and property factors, and buy-to-let lending has different criteria from many residential mortgages.
Mortgage questions, answered
A few straightforward answers to common mortgage questions.
Next steps
Ready to look at figures? These guides and tools pick up where this page leaves off.
- Mortgage calculator: estimate your monthly payments on a new mortgage.
- Remortgage in the UK: how it works: when to switch and how much you might borrow.
- Remortgage calculator: compare your current payment with a new deal.
- How much does it cost to remortgage? Every fee explained, with typical amounts.
- First-time buyer mortgages: deposits, support schemes and how to apply.
Ready to explore your mortgage options?
Now that you understand the different types of mortgages, work through a few quick questions about your circumstances and request a mortgage quote from Find Me a Mortgage.