Selecting a mortgage
is a difficult decision
that you’ll need to think
APPLYING FOR A MORTGAGE can be
intimidating, and it sometimes feels like the
lender has all the power. Every lender has
its own method to decide whether it wants
to lend to you. If you fit a lender’s criteria,
you’ll most probably be accepted quickly. If
you’re far from ideal, you’ll most likely be
rejected by it.
Choosing the right mortgage is a complex
problem, but it’s vital for your financial
health that you make a sensible decision
and don’t get overwhelmed by the options,
especially if you’re a first-time buyer. To
help you feel as confident as possible, we’ve
put together the main different types of
mortgages, so you know exactly what you’re
REPAYMENT OR INTEREST-ONLY
All mortgages are either repayment
mortgages or interest-only.
Repayment mortgages, sometimes called
capital mortgages, allow you to borrow
enough to buy a property (minus your
deposit) and then repay that total amount,
with interest, over time.
Interest-only mortgages allow you to
borrow enough to buy a property (minus
your deposit) and then pay only interest on
that amount until the end of the mortgage
period. You will then repay the original
amount, often by selling the property.
Buyers who plan to live in their property
almost always choose a repayment mortgage.
Not all lenders offer interest-only and those
that do will have strict criteria such as a
decent deposit and an approved repayment
vehicle in place to pay off the capital at the
end of the term.
Many landlords pay their mortgages on
an interest-only basis and lenders generally
TRACKER, STANDARD VARIABLE
RATE AND DISCOUNTED VARIABLE
Variable mortgages can be any of these types,
and the difference between them is how the
interest rate (and therefore the cost of your
monthly repayments) is calculated.
Tracker mortgages have monthly
repayments at an interest rate that’s set a
little higher than the Bank of England base
rate. When that base rate goes up or down,
so will the monthly repayments.
Standard variable rate (or SVR) mortgages
have monthly repayments at an interest
rate set by the lender. Your payments can
go up and down as they decide.
Discounted variable rate mortgages have
monthly repayments that are lower than
the SVR. This discount usually lasts for an
agreed amount of time, and when your
time’s up, you’ll switch to the standard
While the above categories are the main
different types of mortgage, you might
want to consider some of the other special
features that are available.
These can include:
Cashback mortgages, where you’ll receive
a lump sum when you take out the
mortgage (but usually pay a higher interest
rate on repayments).
Offset mortgages, where your cash
savings can reduce the interest you pay on
Current account mortgages, where your
current account and your mortgage are
linked, which can also reduce the interest
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