Different Types of Mortgages

Choosing the right mortgage type

Buying a home usually means taking on a long-term debt, so the “type” of mortgage you choose matters. Different mortgages can affect:

• How your monthly payments are calculated
• How predictable your costs are
• What happens if interest rates change
• Whether the mortgage suits your circumstances (for example, first-time buyers, self-employed borrowers, or non-standard properties)

While lenders and products vary, most mortgages fall into a few broad categories. Understanding them can make it easier to compare options and discuss your situation with a mortgage adviser.

Important: This guide is educational. Mortgage availability and terms depend on lender criteria and your personal circumstances.

Mortgage repayment methods

The first big decision is usually how you repay the mortgage over the term. In the UK, the most common options are:

Capital repayment mortgages

With a capital repayment mortgage, each monthly payment typically covers both:

• Interest (the cost of borrowing)
• Capital (the amount you borrowed)

Over time, the capital balance reduces, and the mortgage is designed to be repaid in full by the end of the term.

Interest-only mortgages

With an interest-only mortgage, your monthly payments cover interest only. The original loan amount still needs to be repaid at the end of the term using a separate plan.

This repayment plan might involve savings, investments, or the sale of the property. Because the lender expects the capital to be repaid later, interest-only mortgages often come with additional requirements and scrutiny.

Part and part mortgages

A part and part mortgage combines the two approaches. You repay some of the mortgage as capital and interest, and the rest as interest-only.

This can be useful if you want a balance between affordability now and reducing the overall risk of having to repay a large capital sum at the end.

Interest rate types: fixed and variable

The next key factor is how the interest rate behaves.

Fixed-rate mortgages

A fixed-rate mortgage has an interest rate that stays the same for a set period—commonly 2, 5, or 10 years (the exact term depends on the deal).

Potential benefits

• More payment stability during the fixed period
• Easier budgeting because the interest rate doesn’t change in that time

Potential trade-offs

• If rates fall, you may not benefit until the fixed period ends
• Switching before the end of the fixed term can involve early repayment charges (where applicable)

Variable-rate mortgages

A variable-rate mortgage means the interest rate can change. It may move in line with:

• The lender’s standard variable rate (SVR), or
• A reference rate such as the Bank of England base rate (depending on the product)

Variable-rate mortgages can suit borrowers who are comfortable with the possibility of payment changes.

Tracker mortgages

A tracker mortgage is a type of variable-rate deal where the interest rate is linked to a reference rate (often the Bank of England base rate) plus or minus a margin.

If the reference rate changes, your mortgage rate can change too.

Discount mortgages

A discount mortgage offers a reduction from the lender’s SVR for an initial period. After the discount period ends, the mortgage typically reverts to the lender’s SVR.

Standard Variable Rate (SVR) mortgages

An SVR mortgage is set by the lender and can change at their discretion (subject to regulatory and contractual terms). SVR rates are often less predictable than tracker or fixed-rate options.

Many borrowers aim to avoid being on SVR for longer than necessary by planning ahead for when their current deal ends.

Specialist mortgages

Mainstream mortgages aren’t always the best fit for every situation. Specialist mortgages are designed for borrowers with particular needs or circumstances.

Bad credit mortgages

If you have a less straightforward credit history—such as missed payments, a County Court Judgment (CCJ), or other adverse markers—some lenders offer products intended for these scenarios.

These mortgages may come with different pricing, deposit expectations, or underwriting approaches compared with standard deals.

Self-employed mortgages

Self-employed borrowers often need to show income in a way that differs from traditional PAYE employment. Specialist products may consider income based on accounts and trading history.

The key is usually demonstrating that income is reliable enough to meet mortgage repayments.

Buy-to-let mortgages

A buy-to-let mortgage is for purchasing a property to rent out. These are typically assessed differently from residential mortgages, with lender calculations often focusing on expected rental income.

Buy-to-let mortgages are often structured as interest-only, but the exact approach depends on the product and lender.

Government-backed mortgage schemes (where available)

Some mortgage routes are designed to help people who may find it harder to save a deposit or meet affordability requirements. Government-backed schemes can change over time, so it’s important to confirm what’s currently available.

Common examples include:

• Shared Ownership: buying a share of a home and paying rent on the remainder, with the option to increase your share over time.
• Right to Buy / Right to Acquire: discounts for eligible tenants of certain housing providers.
• Mortgage Guarantee-style support: aimed at enabling higher loan-to-value lending for eligible borrowers.
• First Homes-style schemes: designed to support eligible first-time buyers and key workers with discounted purchase prices.

These schemes can affect the type of mortgage you’re offered and the process around the purchase.

Niche mortgages for specific property or borrowing needs

Some mortgages are created for unusual properties or particular financial strategies.

Unencumbered property mortgages

An unencumbered mortgage is typically used when you already own a property outright (or have no mortgage on it) and want to release equity.

This can be relevant for renovation plans, debt consolidation, or buying another property.

Non-standard construction mortgages

Some homes—such as those with unusual building methods or materials—may not fit standard lender criteria. Specialist lenders may consider these properties if they can assess the risks appropriately.

Family support options

Where a borrower needs additional help to meet affordability or deposit requirements, some structures involve support from a family member. The exact approach depends on the arrangement and lender rules.

How to match a mortgage type to your situation

Different mortgage types can suit different priorities. When thinking about which option may fit best, consider:

• Your repayment preference: capital repayment, interest-only, or part and part
• Your comfort with rate changes: fixed for stability, variable for flexibility
• Your income profile: PAYE employment versus self-employed income
• Your property type: standard residential versus non-standard construction
• Your deposit and scheme eligibility: including government-backed routes where relevant

A mortgage adviser can help you narrow down options by explaining how lenders typically assess affordability and risk for your circumstances.

Common mortgage types at a glance

• Capital repayment: pays off the loan over time through capital + interest
• Interest-only: pays interest monthly; capital repaid via a separate plan
• Part and part: mix of capital repayment and interest-only
• Fixed-rate: rate stays the same for an agreed period
• Tracker/discount/SVR: variable-rate structures linked to references or lender rates
• Specialist: tailored for situations like self-employment, credit issues, or buy-to-let
• Government-backed schemes: may support eligible buyers with deposit or purchase assistance
• Niche: for non-standard properties or equity-release scenarios

Key takeaway

There isn’t one “best” mortgage type for everyone. The right choice depends on how you want repayments to work, how you feel about interest rate changes, and whether your circumstances fit mainstream lender criteria. Understanding the main mortgage categories can make it easier to compare products and plan your next steps with confidence.