Understanding The Different Types of Mortgages

The main types of mortgages include interest-only, repayment, fixed-rate, variable-rate, offset, first-time buyer, guarantor, and green mortgages. Each type works differently and suits various financial circumstances, so comparing features is important before applying for a mortgage.

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Key Takeaways: 

• There are different types of mortgages, each suited for various financial circumstances. 

• Repayment mortgages are the most common type because they feature a gradual repayment schedule for both the principal and interest. 

• Fixed-rate mortgages provide payment certainty, unlike variable-rate mortgages, where payments can rise or fall with interest rates. 

• Offset, guarantor, and green mortgages are special products suited for specific borrowing circumstances. 

• Choose the right mortgage based on your financial situation, deposit size, risk tolerance, and future plans. Refer to an FCA-regulated mortgage adviser before making a decision. 

Choosing the right mortgage can feel like a lot of pressure, especially with so many options on the market. From interest-only to repayment and fixed rate to standard variable rates, it is essential that you choose the right mortgage for you. Otherwise, it could cost you thousands. 

We’ve found that many buyers usually focus on the interest rate when choosing a mortgage they can afford. In reality, mortgage affordability is also influenced by flexibility, early repayment charges, fees, and how long you plan to stay in the property. We have noticed that these often have a greater impact on affordability than interest rates do. 

When choosing the right type of mortgage, it’s always wise to get advice from an FCA-regulated mortgage adviser. While this article aims to help you better understand the different types of mortgages and their respective pros and cons, it should not be used as a substitute for a licensed financial advisor. 

How Do You Choose the Right Type of Mortgage? 

There isn’t a one-size-fits-all rule for choosing the right type of mortgage. Usually, the most suitable option depends on your specific circumstances, such as your finances, deposit, and property. 

Here’s a quick way to check what type of mortgage suits your specific situation. 

What Is an Interest-Only or Repayment Mortgage? 

An interest-only mortgage is one in which you pay only the interest during the term, and at the end of the term, you repay the principal on the house. In contrast, a repayment mortgage requires you to pay both interest and principal each month. 

A repayment mortgage is the most popular and appropriate choice, as it ensures you pay off your debt and will have repaid the mortgage by the end of the term. 

We noticed that most first-time buyers choose repayment mortgages because they offer a straightforward path to owning the property outright by the end of the mortgage term. Interest-only mortgages are ideal for specific circumstances, such as some high-value borrowing or buy-to-let investments where borrowers have a separate repayment strategy. 

Fixed-rate Mortgages 

Bank Rates are set by the Bank of England’s Monetary Policy Committee (MPC). This influences mortgage pricing across the market. Although lenders also consider their own funding costs and commercial factors, changes to the Bank Rate often affect both fixed-rate and variable-rate mortgage products. 

Fixed-rate mortgages lock in the interest rate for the entire term. If the Bank Rate rises, they don’t have to worry about higher payments. However, if the rate falls, they won’t benefit from it either. They’ll be trapped in a higher-rate mortgage. 

This type of mortgage appeals to people who want predictable payments. Monthly payments remain the same for a set number of years, ranging from two to ten. After this period, it reverts to the lender’s standard variable rate. 

A five-year fixed rate appeals to those who are financially stable but want to minimise any financial risks. However, this could eventually lead to feeling trapped, especially if circumstances change and they end up stuck paying the same rate. 

This is why most people opt for shorter, fixed-rate terms of two or three years, as they offer greater flexibility. At the end of the term, they can always choose to remortgage and move on to the next fixed deal. 

Most fixed-rate mortgages also come with early redemption fees. This means borrowers could face difficulties if they choose to remortgage before the term expires. 

What is a Variable-Rate Mortgage? 

The interest rate on variable-rate mortgages is not fixed and can change each month. The interest rate will be the lender’s Standard Variable Rate (SVR), which is influenced by the Bank of England Base Rate. 

There are different types of variable-rate mortgages. 

Lender’s Standard Variable Rate 

Each mortgage lender has a standard variable rate (SVR) that they can change at any time. However, most changes are usually in line with the Base Rate set by the Bank of England’s MPC. 

Most people end up on a lender’s SVR because their fixed-rate or other mortgage deal has ended. In most cases, the SVR will be higher than your fixed rate, so your monthly payments will increase. 

Discount Mortgages 

Discount mortgages are a good option for those struggling with the high costs of homeownership. Lenders sometimes lower their rates to attract new borrowers who are hesitating because of the higher SVR. The discounted rate could be the lender’s SVR less 1%. This typically lasts 2 to 5 years, after which the rate returns to the original SVR. 

A common issue we’ve noticed among our clients is that they tend to focus on the discounted introductory rate without considering what happens after the promotional period ends. While the discount is certainly appealing, ask yourself what your financial situation will be in 2 or 5 years. Will you be able to afford the higher payments of the SVR? 

Before you choose this mortgage, check if you can remortgage after the discounted period. This could help you get a lower mortgage rate, so you don’t have to be forced into the lender’s higher SVR. 

Tracker Mortgages 

A tracker mortgage tracks the Bank of England base rate, which is set by its Monetary Policy Committee each month, and adds an interest rate on top of it. 

For example, if the Bank Rate is 4.25% and your tracker mortgage is set at Bank Rate +1%, your mortgage rate would be 5.25%. The Bank Rate changes over time, so expect repayments to rise or fall accordingly. 

The Bank of England reviews the rate 8 times a year. This schedule is published ahead on their news portal. Monitoring these scheduled reviews will help you anticipate changes in your mortgage repayments. 

Capped Rate Mortgages 

A capped-rate mortgage is a type of variable-rate mortgage. However, it has an interest cap, so your payments cannot exceed a certain amount. 

These capped rates tend to last only a limited time, usually 2 to 5 years, before you are transferred to the lender’s SVR. They’re also more expensive than other types of variable-rate mortgages. Since this mortgage offers the best of both worlds and the lender assumes the financial risk if rates skyrocket, it comes at a premium. 

What is an Offset Mortgage? 

An offset mortgage is when your mortgage lender considers the balance in your savings account with them and offsets it against the debt on which interest is charged. For example, if you have £15,000 in savings and a £100,000 mortgage, you would only have to pay interest on £85,000. 

This makes it ideal for borrowers who consistently maintain significant savings with the same mortgage lender. 

A key benefit of this type of mortgage is the flexibility it provides over your monthly payments. You maintain the option to pay less interest when your linked savings balance is high, while retaining the freedom to withdraw cash and temporarily increase your payments when extra liquidity is needed. 

The primary downside is forfeiting the standard interest growth on the savings held with the lender. However, most won’t mind because it serves as a trade-off for borrowers. With the savings’ interest being used to reduce the mortgage interest, it will be exempt from UK income tax. 

First-time Buyer Mortgages 

To help people get on the property ladder, many mortgage lenders offer special deals for first-time buyers. These special offers usually consist of a lower deposit and lower application fees. The mortgages are also often discounted to ease the financial strain in the first few years. However, they may have to pay this back later. 

The Help to Buy scheme was a popular option for many. However, the last date to apply for this was 31st October 2022. Government-backed home ownership schemes change over time. Rather than relying on historical schemes such as Help to Buy, first-time buyers should check which deposit assistance or affordability schemes are currently available when applying for a mortgage. 

We have noticed how many first-time buyers now purchase with 5% or 10% deposits. While this is ideal, it’s still best to make larger deposits, as these often provide access to more competitive mortgage rates. 

Read more about Help to Buy alternatives to understand your options. 

What is a Guarantor Mortgage? 

This is when a relative acts as a guarantor and agrees to make the mortgage payments if you can’t. When you have a guarantor, you can usually borrow a larger amount than you could on your own. 

Under this type of mortgage, the borrower and guarantor should obtain independent financial and legal advice before entering into this arrangement. After all, the guarantor may become responsible for mortgage repayments if the borrower can’t continue making payments. 

What is a Green Mortgage? 

These types of mortgages reward you for saving energy within your property. Some lenders will offer cashback, larger loans, or lower interest rates if your home meets a minimum energy-efficiency level or if you make energy-efficient improvements. Lenders offering green mortgages include NatWest, Barclays, Nationwide, Saffron Building Society, and more. 

Eligibility will vary between lenders. Some require a minimum EPC rating, while others offer incentives after energy-efficiency improvements have been completed. 

Choose The Right Mortgage For You 

Choosing the right mortgage involves much more than comparing interest rates. You need to consider your deposit, financial goals, ability to deal with changing interest rates, and long-term plans. These should help you identify what type of mortgage suits your specific situation. Understanding how each mortgage works before submitting your application can help you avoid unnecessary costs and choose a product that can support your future plans. 

Once you’ve secured your mortgage, your conveyancer will work with your lender to complete the legal aspects of your property purchase. If you’re ready to move, Muve’s conveyancing team can help you throughout the property transaction, from instruction to completion. Get a free conveyancing quote within minutes. 

If you also need mortgage advice, Muve works with Habito, an FCA-regulated mortgage broker that provides advice and expert support to help people buy and finance their homes. Find out how to get the best mortgage. 

About this article 

Last reviewed: September 2026  

This article was written by Diana Santos, a legal service and property writer with more than a decade of experience creating educational content for property businesses across the UK. Since joining Muve, she has specialised in UK conveyancing, home buying and selling, and residential property law, researching guidance from organisations including the Council for Licensed Conveyancers (CLC), the Solicitors Regulation Authority (SRA), and HM Land Registry.   

While this article is reviewed periodically to reflect changes in UK conveyancing practice, this is for general information only and does not constitute legal advice.