Types of mortgages explained

What is a mortgage? 

A mortgage is a sum of money you borrow from a lender to buy a property. You repay it over time, usually with interest. The type of mortgage you choose can affect how much you repay and how flexible your repayments are.

Choosing a mortgage is one of the biggest financial decisions you'll make. Understanding the different types of mortgages can help you make a confident, informed choice.

What mortgages does Principality offer?

We offer a few different types of mortgages. We have a range of residential mortgages including: 

• Fixed rate mortgages
• Discounted mortgages
• Tracker mortgages

Plus we offer buy to let and holiday let mortgages.

Types of mortgages explained

Fixed rate mortgage

With a fixed rate mortgage, your interest rate stays the same for a set period of time, often 2 or 5 years. This means your monthly repayments won't change during this time. Knowing how much you need to pay every month can make it easier to plan your finances and budget.
 

Discounted rate mortgage

A discounted mortgage gives you a discount against your lender's SVR, meaning your rate can increase or decrease over time.

 

Tracker mortgage

Tracker mortgages follow the Bank of England base rate. This means your monthly payment can go up or down, depending on changes to the base rate.
 

Standard Variable Rate (SVR) mortgage

The SVR is a rate set by your lender. It can go up or down, often in response to changes in the Bank of England base rate. You'll usually move onto the SVR when your initial deal (like a fixed or discounted rate) ends. 
 

Buy to let mortgage 

Buy to let mortgages are for people buying a property to rent out to tenants. They usually have different eligibility criteria and interest rates compared to residential mortgages.
 

Holiday let mortgage

Holiday let mortgages are designed for properties that are rented out on a short-term basis to holidaymakers. These types of mortgages suit people looking to invest in holiday rentals. 
 

Offset mortgage 

An offset mortgage links your mortgage to a savings account you hold. The money in your linked savings account is used to reduce the amount of your mortgage that you're charged interest on. (This can help you pay less interest overall). 
 

Interest only mortgage

With an interest-only mortgage, you only pay the interest on the loan each month. You don't repay the mortgage loan itself until the end of the mortgage term. That means its important to have a plan in place for repaying the full amount.
 

Repayment mortgage

A repayment mortgage means you pay back both the amount you borrowed (the capital) and the interest each month.  By the end of the mortgage term, you will have fully repaid your mortgage and any interest you owe.
 

95% mortgage and 100% mortgage

A 95% mortgage lets you borrow up to 95% of the property's value. Which means you only need a 5% deposit. These mortgages are often aimed first time buyers to help them onto the ladder. 

A 100% mortgage means you can borrow the full value of the property without having to put down a deposit. These types of mortgages are rare and not offered by many lenders. They usually come with some extra conditions.
 

Joint Borrower Sole Proprietor (JBSP) mortgage

These mortgages allow someone to help wth your mortgage repayments (often a parent), without being named on the property deeds. A Joint Borrower Sole Proprietor mortgage can help you borrow more based on the combined incomes and is often used as short-term support for affordability. 
 

Retirement interest only mortgage

A retirement interest-only mortgage is for people approaching retirement. You pay interest each month, and the loan is repaid when the property is sold, you move into long-term care, or you pass away. 

How do I choose the right mortgage? 

Choosing a mortgage that suits you depends on your financial situation, goals, and future plans. It's a good idea to speak to an independent financial advisor or broker. They can help you compare deals and find one that fits your needs.