Navigating the different types of mortgages

Why is this important?

There are many different types of mortgages. Understanding them can help you find the right mortgage for you. 

What is a mortgage? 

A mortgage is a sum of money you borrow from a lender to buy a home. 

What types are mortgages are there and what do they mean? 

 

Fixed rate 

This is when you agree to pay the same interest rate for a certain time, e.g. 2 or 5 years. It helps you know how much you need to pay every month. 

 

Tracker 

With a tracker mortgage your monthly payment can go up or down. The amount will depend on the interest rate set by the Bank of England. 

 

Discounted 

This type of mortgage gives you a discount on the lender's standard rate. This means you pay less interest on your mortgage for a fixed period.  

 

Standard Variable Rate 

The Standard Variable Rate (SVR) is set by a mortgage lender, but can be influenced by changes in the Bank of England. The interest rate can go up and down. 

 

Offset mortgage 

An offset mortgage connects your mortgage and savings accounts. The money in your savings account reduces the amount of interest you need to pay on your mortgage. 

 

Interest only 

With an interest-only mortgage, you only pay the interest on the loan each month.  

 

You don't pay back the actual amount you borrowed. This means your mortgage amount does not go down while you are on this type of mortgage. 

 

Repayment 

A repayment mortgage is when you pay back both the amount you borrowed for the house (often called capital) and the interest and over a certain period. Each month, you make a repayment that goes towards reducing the loan and paying off the interest. By the end of the mortgage term, you will have fully paid back the loan and interest. 

 

Buy to Let 

A buy to let mortgage is for someone who wants to buy a property that will be rented out to tenants.  

 

The mortgage terms and interest rates for buy to let mortgages are usually different from regular residential mortgages. 

 

Holiday Let  

A holiday let mortgage is for someone who wants to buy a property and rent it out as a vacation home or holiday rental. These mortgages are designed specifically for properties that are rented out on a short-term basis to holidaymakers. 

 

95% mortgage 

A 95% mortgage allows you to buy a property with a 5% deposit. You would then borrow 95% of the property's value. These types of mortgages are usually offered to first time buyers. 

 

100% mortgage 

A 100% mortgage means you can borrow the full purchase price of the property without having to put down a deposit. These types of mortgages are rare and not offered by many lenders. 

 

Joint Borrower Sole Proprietor

This is when one person is listed as the property owner, but another person is named as a borrower.  

 

Both borrowers share responsibility for the repayments, but only one person owns the property. 

 

Sometimes an older family member may be a joint borrower to help a younger individual buy a home, as the amount that can be borrowed would be based on both incomes. 

 

These types of mortgages tend to be short term support for people struggling with qualifying for affordability criteria. The person who owns the property can eventually take them off the mortgage.  

 

Retirement interest only  

A retirement interest-only mortgage is for older individuals who have retired or are approaching retirement age.  

 

It allows you to pay only the interest on the loan while you're living in the property. The loan is usually repaid when you sell the property, move into long-term care, or pass away. 

How do I decide what mortgage is right for me? 

You should seek independent financial advice when considering a mortgage.  

 

A mortgage advisor or broker can help you to decide which option is right for you, based on your individual needs.  

What mortgages are offered by Principality?

We offer five types of mortgages: 

• Fixed rate 
• Discounted 
• Tracker 
• Buy to Let 
• Holiday Let