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The Different Types of Mortgages Explained

Looking for the perfect mortgage deal in line with your financial circumstances can be a challenge. And with so many different mortgages available, it can be a headache trying to work out which one to go for. Once you get around all the mortgage jargon and understand the differences between each type of mortgage, it’s a lot easier to narrow down your options.

In this article, we will discuss the different types of mortgages available to help you understand which is best for you and your circumstances.

When looking for a mortgage, asking for professional mortgage advice from a mortgage broker can help make the process easier. You can also find some good deals you wouldn’t have come across on your own, so don’t hesitate to get in touch with the team at Mortgages Online if you would like our help or advice.

Fixed-rate mortgage

A fixed-rate mortgage keeps your monthly payments the same over a set term. For peace of mind, having a fixed-rate mortgage can be less stressful as you’ll know the exact amount you’ll be paying per month, without having to worry about interest rates increasing.

However, if the interest rate falls, you will still have to pay your fixed-rate price. You can get a fixed-rate mortgage that lasts between two and five years, but it’s also possible to get one up to 10 years or more.

When this fixed term comes to an end, it’s likely that you’ll be moved onto your lender’s Standard Variable Rate but bear in mind that this can be more expensive. However, if you know your fixed term is coming to an end you can start to look around for better prices and deals. By doing this you can avoid moving to a more expensive SVR.

Variable rate mortgage

With a variable rate mortgage, your monthly payments can fluctuate. This means that your monthly payments can go up or down.

There are different types of variable-rate mortgages which include tracker, discounted and capped rate mortgage.

Tracker mortgage

A tracker mortgage is a loan where the interest is based on an external rate, most likely the Bank of England base rate, with a set percentage added to that. It rises and falls in line with this interest rate. You can either get a ‘lifetime’ tracker mortgage or a term tracker which can last around two to three years.

Discounted rate mortgage

A discount mortgage is another type of variable rate mortgage. This mortgage offers a discount on the lender’s Standard Variable Rate (SVR) for an amount of time, which is usually between two and five years. This type can be one of the cheapest mortgages, but as with SVR, the rate will follow any SVR changes and can go up or down.

Capped rate mortgage

With a capped rate mortgage, a limit is placed on how much the interest rate can increase. There will be a cap on how high your interest can rise, so you have some reassurance that your monthly payments won’t go over a certain amount, but you will still benefit if the interest rate decreases.

Offset mortgages

With an offset mortgage you can use your savings to decrease how much interest you pay on your mortgage. This means that you’re charged less interest on your mortgage debt instead of earning interest on your savings.

With an offset mortgage, you can either reduce your mortgage repayments due to having a reduced interest charge, or you can keep the payments the same and pay your mortgage off faster. Offset mortgage deals can offer fixed or variable rates.

Buy to Let mortgages

If you’re looking to buy a property and rent it out, you will need a buy to let mortgage.

The amount you’ll be able to borrow will depend on the amount of rent you expect to get from the property, your income and personal financial circumstances. If this is your first time buying a property, you might be less likely to get accepted for a buy to let mortgage, but it is still possible.

Let to Buy mortgages

A let to buy mortgage is for individuals wanting to rent out their current home and buy a new property to live in themselves. This would mean having two mortgages, one for your old home and one for the new one.

These mortgages can be complicated and there are limited options available, so you might want to get some professional mortgage advice when looking for a let to buy mortgage. We would be happy to help, so get in touch if you require any advice.

Specialist mortgages

If you have special financial circumstances, you might need a specific type of specialist mortgage. This can include bad credit mortgages, those who are newly self-employed, and individuals looking for a guarantor mortgage.

For those who have a poor credit history, many lenders might not accept your application. A specialist mortgage advisor will know of lenders who will be happy to help those with a bad credit history, so it is worth getting in touch with one.

For the self-employed, you may need help securing a mortgage so speaking to a mortgage advisor is a good place to start.

Another specialist mortgage is a guarantor mortgage, this is when a family member guarantees your loan to help you get onto the property ladder.

95% mortgages

If you’re a first-time buyer, and they’re available at the time you’re looking for a mortgage, you could be eligible for a 95% mortgage. This allows you to get a mortgage with a minimum of 5% deposit which is ideal for individuals who don’t have a large sum in savings.

Find what’s right for you

Choosing a type of mortgage will depend on a range of aspects, such as whether you’re planning on living in the property or you’ll be renting it out. The amount you pay back each month will also depend on several things, including how much you’ve borrowed, the interest rate, how long your mortgage is and whether you have an interest-only or a repayment mortgage.

At Mortgages Online, our team of professional online mortgage advisors can help advise the best mortgage deals for you, suited to your circumstances. If you’d like our help, don’t hesitate to get in touch or start the process here!


Andrew Montlake

As Managing Director, Andrew looks after the strategic goals that drive the vision and culture of the company, maintaining and promoting our Brand, Marketing, PR & Communications, as well as looking after our Corporate, Introducer, and Lender relationships.

He is the author of a highly acclaimed Mortgage Blog and host of our successful Mortgage & Property Podcasts and he has also won 8 major industry awards; Best Press Spokesperson (twice), Best Marketeer (twice), Mortgage Personality of the Year (twice), Mortgage Strategist of the Year and most recently Best Business Leader Broker (11-50 brokers).

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