Main types of Mortgage Repayment

Capital & Interest Repayment – This is the most common type of Mortgage for Residential Mortgages.

This is where you repay the Mortgage balance as well as the interest to the Mortgage Lender each month.

At the end of the term providing you have kept up with repayments, your Mortgage is guaranteed to be repaid.

Interest Only – This is the most common type of Mortgage for Buy to Let Mortgages as it enables the borrower to maximise profit from the monthly rent.

This is where the borrower just pays the interest each month and isn’t obliged to repay the Mortgage until the end of the term.

You will have to repay your full mortgage at the end of the term. For example, bu selling your property.

Offset – An offset mortgage is where you have savings account linked to your Mortgage with the same lender.

The money you save in the account are used to reduce – or ‘offset’ – the amount of mortgage interest you’re charged on your Mortgage.

Generally, you will only pay off the interest each month.

Offset Mortgages are usually best for experienced Borrowers who have a high number of savings. They are good for when savings interest rates are low.

Flexible – a Mortgage that is flexible usually allows you to make overpayments, underpayments and sometimes borrow back money that you have already paid off.

In addition they usually allow payment holiday and have the ability to port the Mortgage (to a different property).

Flexible Mortgages are quite rare in the UK Mortgage market.

The Different Types of Mortgages

Fixed Rate – This is the most common type of Mortgage for Residential Mortgages.

This is where you repay the Mortgage balance as well as the interest to the Mortgage Lender each month.

At the end of the term providing you have kept up with repayments, your Mortgage is guaranteed to be repaid.

Standard Variable Rate (SVR)– This Mortgage is a Lenders own interest rate which is set by the Lender.

The Lender can choose to change this rate when they like. But usually this will be changed when the Bank of England changes their Bank Base Rate.

However, it is worth stressing the Mortgage Lender doesn’t have to change their rate in line with this, and the SVR will usually be much higher than the Bank of England Base Rate.

The SVR is what most Mortgages move onto after the end of the initial Fixed, Tracker, or Discounted Rate, if the borrower doesn’t Remortgage or change Products.

Tracker – A Variable rate which tracks or fluctuates in line with another rate. Usually the Bank of England Base Rate.

Discounted Rate – a Variable rate which is usually a set discount from the Lenders standard Variable Rate.

The interest rate and therefore your repayment will fluctuate as the Lenders Standard Variable Rate does.

Capped – A variable rate Mortgage which fluctuates and has a cap (an upper limit), meaning your rate cannot go above a certain rate.

Collared -the opposite of a capped Mortgage. This is a Mortgage which cannot fall below a certain rate. 

Some Lenders in the past have been known to offer Mortgage which have a Cap and Collar, as oppose to one or the other.

Flex Fixed – like the Fixed Rate. Your interest rate and therefore your repayment will be fixed for a defined period of time.

However, the flexed part of the Mortgage means you can make unlimited overpayments.

Interest rates are usually slightly higher than normal to pay for this extra flexibility.

But if you are expecting to want to repay your Mortgage within 2-5 years or would like the flexibility to do so. It is very much worth it to avoid Early Repayment Charges.