Our Guide to All The Different Types of Mortgages…and There Is a Lot!

The Mortgage Bank guide to all different mortgage types
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There are so many different types of mortgage available on the market; it can be difficult to know where to start. Finding the right deal involves getting to know what is available out there so you can identify which mortgage best suits your circumstances.

  • Standard Variable Rate
  • Tracker
  • Discount
  • Capped
  • Fixed-rate mortgages
  • Repayment
  • Interest-Only
  • Flexible Repayment
  • Offset
  • Help-to-buy
  • Joint Mortgages
  • Buy-to-let
  • Bad Credit Mortgages
  • Guarantor Mortgages

The way interest is worked out, how you make repayments, whether you’re allowed to rent out your home and even who owns the house at the end of the mortgage can all vary.

Below you can read about different types of mortgage and their pros and cons.

To make things easier, the list is broken down into four main categories: types of mortgage-related to interest rates, those with special repayment terms, mortgages which affect ownership and mortgages which are aimed at special groups of customers.

Types of Variable-Rate Mortgage

In a variable rate mortgage, the interest rate you are charged changes. It can go up and down depending on a number of factors, meaning that your monthly mortgage payments can change.

Standard Variable Rate

This is the most straightforward type of mortgage out there- it’s also one of the most common. In 2018, a Which survey found that one-quarter of Brits were on a Standard Variable Rate mortgage (SVR). Despite their popularity, SVR mortgages often aren’t very competitive. Each lender has its own ‘standard variable’ interest rate, which they can change at any time. Lenders’ SVR interest rates are usually higher than the interest rates on the other types of a mortgage they offer.

One reason for their popularity is that borrowers are automatically moved onto their lender’s SVR at the end of temporary discount deals.

Pros: Most SVR mortgages don’t charge early repayment fees; if your lender’s SVR is low, your monthly payments will be too

Cons: Interest rates are normally higher than average and can change at any time.   


Tracker mortgages have a variable interest rate which follows the movements of another rate, at a fixed margin about it. Most commonly, the rate which is ‘tracked’ is the Bank of England’s base rate. For example, if a 2% tracker mortgage would follow the movements of the Bank of England’s base rate, just at 2% higher. If the Bank of England set their interest rate to 0.5%, the interest rate on a 2% tracker mortgage would be 2.5%.

This type of mortgage is normally offered as an introductory deal, lasting for between 2-5 years. At the end of the introductory period, you are moved onto the lender’s standard variable rate. Because this is almost always a higher interest rate, your monthly payments will probably increase, and you may decide to remortgage at this point.

Some of the lowest mortgage interest rates are to be found with tracker mortgages; although a small number of lenders apply a minimum rate, to protect the lender if the Bank’s rates fall very low.

Pros: Tracker mortgages can offer some of the cheapest interest rates; they usually have low early repayment charges; some lenders allow you to switch to a fixed rate deal for little or no cost if climbing interest rates start to push up your monthly payments

Cons: Some trackers have a minimum interest rate or ‘collar’, which prevents you from accessing the lowest rates; when interest rates go up, so do your payments


The interest rate on a discount mortgage tracks the movement of a lender’s standard variable rate (SVR), at a fixed discount margin below.

For example, if a lender’s SVR were 6%, the interest rate on a 2% discount mortgage would be 4%.

The standard variable rate is a generic interest rate set by the lender, which the lender can change whenever they like. If the SVR changes, so does the discount rate.

Most discount rate mortgages are introductory deals lasting from 2-5 years. At the end of the introductory period, the lender automatically moves the mortgage onto their SVR, meaning that monthly payments will go up.

Pros: If interest rates are generally low, you could end up paying very little interest while on a discount mortgage; you are guaranteed to pay less than the SVR on a discount mortgage

Cons: Your monthly payments are liable to fluctuate; you will face an increase in monthly payments at the end of the deal; some lenders impose a minimum interest rate, which means you won’t be able to access the lowest rates even if interest rates are generally low


A capped mortgage is the only type of variable-rate deal which offers you complete budget security. There is a ceiling, or ‘cap’ placed on the interest rate, guaranteeing that you will never be charged more than this.

However, this added security is not completely free: the base interest rate on a capped mortgage is usually slightly higher than on the lender’s tracker or discount mortgage.

Most capped mortgages have no ‘collar’ or minimum interest rate, meaning that you can still make savings if interest rates fall. Normally, they are offered as an introductory deal of two to five years. At the end of the introductory period, your mortgage moves onto the lender’s SVR, which may have a higher interest rate.

Pros: Peace of mind knowing that you will never have to pay more than the cap; able to make savings when interest rates fall

Cons: Most lenders charge early repayment fees if you decide to leave or remortgage before the end of the introductory period; sometimes the cap can quite high, meaning your maximum payment could still be expensive.

Fixed-Rate Mortgages

If the idea of fluctuating monthly mortgage payments sends you into a panic, a fixed mortgage could be the solution you need. As the name suggests, fixed-rate mortgages guarantee the interest rate will remain the same for a fixed amount of time.

This model offers the security of knowing exactly how much you need to pay each month and the peace of mind that you won’t be faced with an unaffordable bill if interest rates start to climb.

Usually, fixed-rate deals last for two to five years, and at the end of the introductory period, you are moved onto the lender’s standard variable rate. Due to large numbers of people choosing to remortgage at the end of the fixed-rate period, some lenders include a tie-in clause, which requires you to stay on the lender’s variable rate for a certain amount of time after the deal ends.

Pros: Enables you to budget; offers financial security for the length of the deal

Cons: If interest rates are low during the fixed-rate period, you could miss out on savings; if your lender has a tie-in clause, you might not be able to remortgage for some time after the introductory offer ends

Repayment Method

Most mortgages in the UK are traditional, straightforward repayment loans. However, there are several ways you could go about repaying the debt.


This is the classic mortgage model and probably the one which first comes to mind when most people think of how mortgages are paid off. Every monthly, you make a payment to your lender, part of which goes towards paying off the capital you borrowed and part of which pays off the interest on that capital. 

At the end of the mortgage, you have paid off everything you borrowed plus interest and own your home outright.

At the start of your mortgage, you owe lots of money, which accrues interest quickly; so at the beginning, most of your payments go towards paying interest. For this reason, it takes a long time before you start making a noticeable dent in your balance. Over the years, less and less money is needed to clear outstanding interest, and by the end of your mortgage, almost all of your monthly payments are being used to pay off the capital you borrowed.  

Pros: Straightforward and anyone looking to buy a house can apply; at the end of the mortgage you own your home outright

Cons: Monthly payments can be high because you are paying off your debt and interest together; most repayment mortgages are not very flexible, and you will need to make regular instalments of the same size for the duration of the mortgage


With an interest-only mortgage, you only pay back the interest on the money you borrowed over the lifetime of the loan. For this reason, monthly payments are very low; however, at the end of the mortgage, you still owe the amount you borrowed.

Before taking out an interest-only mortgage, the lender will need to see evidence of how you plan to repay the money at the end of the term. Some people use investments, savings accounts or pensions.

Whatever it is, it needs to be watertight, because if you can’t afford to repay, your home could be repossessed.

Pros: Low monthly payments; overpayments go straight towards clearing the capital you owe; your debt depreciates over time due to inflation

Cons: If your investment strategy doesn’t pay off, you risk losing your home

Flexible Repayment

Flexible payment terms may be added to any kind of mortgage, so strictly speaking, this is not a type of mortgage in its own right. Rather, it is a set of flexible add-ons that can be used to enhance other mortgage deals.

The most characteristic feature of flexible repayment mortgages is the ability to make overpayments and underpayments without being charged any penalty fees. By making regular overpayments, you can quickly make a dent in your capital and reduce the amount of interest you pay. If you change your mind later on, some lenders will allow you to borrow back from the pool of overpaid money. If you make sufficient overpayments, lenders might also allow you to take a payment break or make underpayments for a fixed amount of time.

Pros: Paying extra early on chips away at your debt faster; after you’ve overpaid, you have the option to underpay or take a break if you have a change in circumstances

Cons: Taking a break or making underpayments will make your mortgage last for longer; you need to make overpayments first before you can take advantage of the other features.


Offset mortgages help you to offset the cost of a mortgage against a savings account. When you take out an offset mortgage, the balance of the savings account you choose is subtracted from the amount you borrow, and you only get charged interest on the remainder.

Your savings don’t actually get used to pay the mortgage; they just act as insurance. By reducing the amount you’re being charged interest on, you can reduce your monthly payments or pay off off your mortgage faster.

For example, if you borrowed £100, 000 at a fixed interest rate of 4%, your monthly payments would be £528. If you offset that with £10,000 savings, your payments would fall to £475 per month, saving over £600 per year. 

You don’t need to use your savings either; friends and relatives can volunteer to offset their savings on your mortgage. One drawback is that as long as savings are offset against a mortgage, they won’t earn any interest.

Pros: Help friends or relatives onto the property ladder; save more on interest than you would earn from savings in an ISA; finish your mortgage sooner or reduce monthly repayments

Cons:  If you spend your savings, your mortgage will increase; you can’t earn interest on any savings which are offset



Help-to-buy is a UK government scheme for first-time buyers. If you can raise a 5% deposit for certain newly-built homes worth up to £600,000, the government will contribute up to 20% of the home’s value to put towards your deposit. If you live in London, you may be able to get a help-to-buy loan of up to 40%.

This contribution is, in fact, an equity loan, which is interest-free for five years. After five years, the loan starts to earn interest at 1.75%; after seven years, this increases to at least 2.75%. You must repay the loan within 25 years or as soon as you sell your house. Until it has been repaid, you won’t own your home outright.

Pros: Can help you get on the property ladder sooner; equity loan is interest-free for the first five years; some lenders offer special rates to help-to-buy borrowers

Cons: Only available for certain newly-built properties; your choice of lender is restricted to those accepted by the scheme; if your home’s value depreciates, you risk falling into negative equity (i.e. owing more than your home is worth)

Joint Mortgages

Joint mortgages are for people who want to buy a home together. The rates, fees and repayment terms are the same whether a mortgage has one applicant or several. The main difference is that with a joint mortgage, all the applicants will share ownership of the home and can pool their resources to make a larger deposit.

Generally, the more money you are able to offer as a deposit, the better interest rates you’ll have access to. By applying as a couple or a group, individuals may be able to afford more than they would otherwise be able to on their own.

However, once you have a mortgage with another person, you become financially tied to them for the lifetime of the loan. This means that your credit reports are linked, and if you want to leave the deal, you may have no choice but to continue paying, sell your share or transfer ownership to the other parties.

Pros: By pooling resources, you might be able to afford a better property or get a better mortgage deal; parents with strong credit ratings can help their children onto the property ladder by acting as a joint applicant

Cons: It can be costly and complicated to exit a joint mortgage if relationships break down and parties want to go their separate ways, or if one party dies; Applicants credit histories get linked, so if one person has a bad credit score it can affect everyone

Specialist Mortgages


If you plan to buy a property in order to rent it out, you’ll need a buy-to-let mortgage. These come in as many shapes and sizes as ordinary residential mortgages- from fixed-rate to tracker and discount- but there are some key differences to the application process.

Before you take out a buy-to-let mortgage, you’ll need to provide a deposit of at least 25% and show the lender that you have enough in savings or other income to cover the cost of your mortgage payments if the house were to be empty for a period of time.

Unlike regular mortgages, the lender won’t use your income as a determining factor of how much you can borrow. Instead, they will assess how much you could charge as rent. In general, you’ll need to show that you could rent the property for at least 25% more than the cost of your monthly payments.

Pros: Tailored to the needs of landlords; how much you can borrow is not dependent on your income

Cons: Not many lenders offer buy-to-let mortgages so that you won’t have as much choice; you need to make regular repayments even is you can’t find tenants

Bad Credit Mortgages

If there are blemishes on your credit report, you could have a hard time finding a mortgage from a high street lender- however that doesn’t mean you won’t be able to get one. There are plenty of building societies and online lenders who consider applicants with bad credit or who have faced financial difficulties in the recent past. Even with a bankruptcy, CCJ or IVA on your file, there is likely to be a lender out there who will consider your application.

Most of these specialist lenders will require that you have at least a 25% deposit on your home. They may also charge slightly higher interest rates than high street lenders and tend to offer fixed-rate interest models as standard.

Pros: Allows you to get on the property ladder or remortgage your home even if you’ve had trouble with credit; doesn’t require you to involve family members as co-signors, joint applicants or guarantors

Cons: These mortgages can be more expensive than mainstream options; you’ll need at least a 25% deposit; there aren’t many providers, so your choices may be limited.

Guarantor Mortgages

With a guarantor mortgage, someone else agrees to offer their income, saving or property to offset the risk that you fail to repay your debt. Any type of mortgage can be made a guarantor mortgage; it is the fact that it has been underwritten by a third party that makes it unique.

People tend to use family or very close friends as their guarantor, but in theory, it could be anyone who understands the risk, is over 21, and has sufficient wealth to finance your mortgage if you don’t repay it.

In most cases, if that were to happen, the lender would repossess your home, and the guarantor would be liable for any fees or shortfall in the proceeds of the sale.

With a guarantor, it is possible to get a mortgage with only 5% deposit. For this reason, guarantor mortgages are useful for people with low income or a low deposit.

Pros: Can help people with low income, no deposit or a bad credit history get onto the property ladder; can unlock better rates and deals

Cons: The guarantor takes a serious risk; defaulting on your loan could result in repossession, claims against the guarantor and put significant strain on your relationship

How Can The Mortgage Bank Help?

Here at The Mortgage Bank, we have partnered with some of the UK’s leading mortgage brokers.

They have already helped thousands of people get the best remortgage deal even people that have been refused before, and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

Len Burgess
Len Burgess
Len Burgess is a successful digital entrepreneur and founder of LBLK Publishing which specialises in Financial content. Len has been writing professionally on financial and business topics for 5 years before starting The Mortgage Bank.
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