You’ve provided an excellent overview of the different types of mortgages, with a clear focus on the UK market. The distinction between fixed and variable rates, and the detailed breakdown of various variable rate options, is particularly helpful.
Here’s a summary of the different types of mortgages based on your provided text, with some additional contextual points relevant to the UK:
Different Types of Mortgages in the UK
When you borrow money to buy a home, you’ll be charged interest on the amount you owe. This is known as the ‘mortgage rate’. In the UK, mortgages primarily fall into two main categories: fixed-rate and variable-rate mortgages, with several sub-types under the latter.1
1. Fixed-Rate Mortgages
With a fixed-rate mortgage, the interest rate remains the same for a set period, regardless of what happens in the wider market.2 This means your monthly repayments are predictable and won’t change during this fixed term.
- Common Fixed Terms: Usually between 2 and 10 years (e.g., ‘two-year fix’, ‘five-year fix’, ‘ten-year fix’).
- Post-Fixed Term: Once the fixed deal ends, your interest rate typically reverts to the lender’s Standard Variable Rate (SVR), which is often higher.3 At this point, most borrowers choose to “remortgage” to a new deal with their current lender or a new one.
Pros of Fixed-Rate Mortgages:
- Budgeting Certainty: Your monthly payments stay the same, making financial planning easier.
- Protection from Rate Rises: You are unaffected if general interest rates (like the Bank of England Base Rate) increase during your fixed term.
- Overpayments: Most allow you to pay extra (usually up to 10% of the outstanding balance per year) without penalty.
Cons of Fixed-Rate Mortgages:
- Initial Rate: Fixed rates can sometimes be slightly higher than initial variable rates.
- Missed Savings: If interest rates fall, you won’t benefit from lower payments.
- Early Repayment Charges (ERCs): There are often significant charges if you try to leave the deal early (i.e., before the fixed period ends).
2. Variable-Rate Mortgages
A variable-rate mortgage is one where the interest you pay can go up or down, typically in line with the Bank of England Base Rate.4 This means your monthly payments can fluctuate.
The Bank of England Base Rate is currently 4.25% (as of 19 June 2025).5
There are several types of variable-rate mortgages:
a. Tracker-Rate Mortgage
- How it Works: These rates directly ‘track’ another interest rate, most commonly the Bank of England’s Base Rate, plus a set percentage.6 For example, if your mortgage is “Base Rate + 1%”, and the Base Rate goes up by 0.25%, your mortgage rate also goes up by 0.25%.7
- Term: Usually last for two to five years, though some lenders offer trackers for the entire mortgage term.
Pros of Tracker-Rate Mortgages:
- Benefit from Rate Falls: If the rate it tracks goes down, your mortgage payments go down too.
- Flexibility: You’re not usually tied in for a long period, allowing you to switch deals or lenders relatively easily, often with fewer or no early repayment charges.
- Overpayments: Often have fewer limits on making extra payments.
Cons of Tracker-Rate Mortgages:
- Risk of Rate Rises: If the rate it’s tracking goes up, your mortgage payments will increase, potentially making budgeting difficult.
b. Standard Variable Rate Mortgage (SVR)
- How it Works: This is the default interest rate a mortgage lender applies once a fixed, tracker, or discounted deal ends, if you don’t secure a new product.8 Each lender sets its own SVR, and it can change at any time, typically without direct linkage to the Bank of England Base Rate (though it is influenced by it).9 SVRs are generally higher than other mortgage products.
- Duration: You can usually stay on the SVR until your mortgage ends, or until you arrange a new deal.10
Pros of SVR Mortgages:
- Freedom: You can leave the deal at any time without early repayment charges.
- Unlimited Overpayments: Usually no limit on making extra payments.
Cons of SVR Mortgages:
- Unpredictable: The interest rate can change at any time, making budgeting difficult.
- Higher Rate: The rate is usually significantly higher than introductory deals, making it an expensive option for the long term.
c. Discounted-Rate Mortgage
- How it Works: This offers a discount off the lender’s SVR for a set period, typically two or three years. The rate you pay will still fluctuate if the lender’s SVR changes. For example, if a bank offers a 1.5% discount off an SVR of 5%, you pay 3.5%.11 If their SVR then rises, your rate will also rise.
- Comparison: A bigger discount doesn’t always mean a lower rate; you need to compare the resulting rate after the discount is applied.
Pros of Discounted-Rate Mortgages:
- Lower Initial Cost: The rate starts lower than the SVR, leading to smaller monthly payments initially.
- Benefit from SVR Cuts: If the lender cuts its SVR, your payments will go down.
Cons of Discounted-Rate Mortgages:
- Unpredictable: Hard to budget as the lender can raise the SVR whenever they want.
- Rate Rises: If the Bank of England’s base rate goes up, the lender’s SVR might follow, increasing your payments.
- Early Repayment Charges: You might have to pay a fee if you leave before the discount period ends.
3. Other Mortgage Types and Features
a. Offset Mortgage
- How it Works: Links your mortgage to a savings account (and sometimes a current account). Instead of earning interest on your savings, the amount in your linked account is ‘offset’ against your mortgage balance. You only pay interest on the reduced mortgage balance.
- Example: £200,000 mortgage at 3% interest with £10,000 in an offset savings account means you only pay interest on £190,000.
- Current Account Mortgage: A variation where your current account balance is also offset.12
Pros of Offset Mortgages:
- Save on Interest: You pay less interest on your mortgage, potentially paying it off quicker.
- Flexible Access to Savings: You can still withdraw your savings if needed, unlike traditional overpayments which are typically locked in.
- Tax Efficiency: You don’t pay tax on the ‘interest saved’ because you’re not earning interest on the savings.
Cons of Offset Mortgages:
- No Savings Interest: Your linked savings account won’t earn interest.
- Limited Access to Deals: There might be fewer offset mortgage products available compared to standard mortgages.
- Higher Rates: Offset mortgages can sometimes have slightly higher interest rates than comparable standard mortgages.13
b. Cashback Mortgage
- How it Works: You receive a sum of cash (either a percentage of the loan or a fixed amount) when your mortgage completes. This can help with initial costs like furniture or repairs.
- Consideration: Cashback mortgages usually charge a higher interest rate than other mortgages, so it’s crucial to compare the overall cost.14
c. Repayment vs. Interest-Only Mortgages (Method of Capital Repayment)
Beyond the interest rate type, mortgages also differ in how you repay the capital:
- Repayment Mortgage: (Most common) Each monthly payment includes both interest and a portion of the capital borrowed. Over the term, the loan balance gradually decreases until it’s fully repaid.
- Interest-Only Mortgage: You only pay the interest charged on the loan each month. The capital amount you borrowed remains the same. You need a separate plan to pay off the capital at the end of the term (e.g., selling another property, an investment endowment). These are less common for residential properties now and often require higher income/equity, but are standard for Buy-to-Let mortgages.
4. Flexible Mortgage Features
Some mortgages offer additional flexible features:
- Overpayments: Allows you to pay more than your normal monthly payment, reducing your debt faster and saving on interest.15 Often capped at 10% of the outstanding balance per year without penalty.
- Payment Holidays: Permits you to stop making payments for a limited period, usually if you’ve overpaid significantly in the past. Interest still accrues during this time.
- Underpaying: If you’ve overpaid previously, some lenders might allow you to pay less than your normal monthly repayment if your financial circumstances change. This means it will take longer to pay off your mortgage and you’ll pay more interest overall.
5. Remortgaging or ‘Porting’ Your Mortgage
- Porting: Many mortgages are ‘portable’, meaning you can transfer your existing mortgage deal to a new property when you move. However, you’ll still need to pass the lender’s affordability checks for the new property and potentially take out a new mortgage deal for any additional funds needed.
- Remortgaging: This involves switching to a new mortgage deal, either with your current lender (a “product transfer”) or a new lender, typically at the end of a fixed or discounted rate period to avoid falling onto the SVR.
How to Compare Mortgage Deals
When comparing mortgage deals, it’s essential to look beyond just the advertised interest rate:
- Annual Percentage Rate of Charge (APRC): This is the key figure to compare, as it tells you the total yearly cost of the mortgage, including all fees and charges, over the entire term.16 Lenders must state the APRC.
- Fees and Charges: Consider arrangement fees (product fees), valuation fees, legal fees, and especially any early repayment charges. A mortgage with a lower interest rate but high upfront fees might not be the cheapest overall.
- Flexible Features: Assess if features like overpayment options, payment holidays, or porting are important to your financial strategy.
Speaking to a Mortgage Broker or Adviser
Given the complexity and variety of mortgage products, speaking to an independent mortgage adviser or broker is highly recommended in the UK. They can:
- Assess your financial situation and eligibility.
- Search the entire market on your behalf.
- Recommend the most suitable deal for your needs, considering all fees and charges.
- Guide you through the application process.