Repayment Types

Capital & Interest or Repayment Mortgage
With this type of mortgage, each monthly payment includes interest on the amount you have borrowed plus an amount that goes towards reducing the capital sum you originally borrowed.  As long as you maintain your monthly payments, your mortgage is guaranteed to be repaid at the end of the mortgage term.

Interest-Only Mortgage
With this type of mortgage, no reductions are made to the amount you borrow; you only pay interest on the balance each month.  You can take out a savings plan designed to repay the mortgage.  Many lenders will accept other repayment vehicles, for example the sale of another property or an expected inheritance as your intended repayment source for the mortgage. 

Interest Rate Types

Fixed Interest Rate
These mortgages offer an interest rate that stays at the same level, usually for an initial period of between 2 and 5 years (although other durations are available).  This type of mortgage is ideal for people who require certainty that their mortgage payments will not increase. 

Tracker Interest Rate
These mortgages offer an interest rate that ‘tracks’ the Bank of England Base Rate.  As the Bank of England Base Rate is changed from time to time, your mortgage interest rate will ‘mirror’ those changes.  As a result your monthly payments could increase or decrease.

Standard Variable Rate
This is the ‘default’ rate of interest offered by mortgage lenders.  It can be increased or decreased at the lender’s discretion at any time, but you usually have complete flexibility to repay the mortgage in full or in part at any time.

Discount Rate
This is a rate that is offered at a discount to the lender’s Standard Variable Rate.  It will therefore be at a lower rate of interest than the lender’s Standard Variable Rate, but it will not usually have the same flexibility with regard to overpayments. 

Capped Rate
This is a Tracker mortgage combined with a maximum (i.e. Capped) interest rate.  Your payments can therefore increase or decrease – but cannot rise above the level of the Cap.

Offset Mortgage 
This type of mortgage allows you to use your savings to reduce the amount of interest charged on your mortgage.  This in turn allows you to repay you mortgage early.

Current Account Mortgage
This type of mortgage uses your savings and current account balances to reduce your mortgage.  In effect you have ‘one big overdraft’ secured against your home.