Type of mortgage

There are basically only two main types of mortgage, "Repayment" or "Interest".

Once you’ve assessed the “right” option, you then have to wade through the multiple variations of each to determine the best option for you.

A simple explanation of a Repayment Mortgage

This is the type of mortgage whereby the property is actually guaranteed to be yours at the end of the mortgage term - provided you have kept up with all the repayments
The mortgage debt is divided into capital and interest payments
As you pay off your mortgage every month you're paying off capital (the sum borrowed) and interest until the full debt is repaid.

A simple explanation of an Interest Only Mortgage

This is whereby you're only paying off the interest on the sum borrowed.
None of your capital is being repaid directly you will still owe the full amount of your sum borrowed at the end of the mortgage term, therefore you are advised to ensure there is an investment in place to pay the mortgage off at the end of the mortgage term, usually repaid by your having made monthly payments into an investment fund which hopefully has grown enough to pay off the capital and leave you with a surplus.

The majority of mortgage providers no longer ask for proof of an investment side when confirming your mortgage.

Other options to consider include

Variable Rate Mortgage

This means that your monthly mortgage payment will rise and fall in line with any increase or decrease in interest rates. Discounted Rate Mortgage This means that your monthly mortgage payment can rise or fall in line with any increase or decrease in interest rates at a guaranteed discount on the lenders basic variable rate for a specified period. At the end of the discount rate period your interest rate would normally revert to the lenders standard variable rate. It may also be a condition of your discounted rate that the mortgage must remain on the lenders standard variable rate for a period after the discount period ends.

Fixed Rate Mortgage

This means that the interest rate you are charged remains the same for a set period of time and your mortgage payment does not change in that time. At the end of the fixed rate period your interest rate will normally revert to the lenders standard variable rate. If this is higher than your fixed rate your payments will increase accordingly. It may also be a condition of your fixed rate that the mortgage must remain on the lenders standard variable rate for a period after the fixed period ends.

Flexible Mortgage

This means that you can vary your mortgage payments. The terms of a flexible mortgage may vary with each lender. However, subject to the lenders terms and conditions, mortgage payments may be varied by making overpayments and lump sum payments and by making underpayments and taking repayment holidays. Base Rate Tracker Mortgages This means that the interest rate you are charged will be linked to the lenders base rate and will rise and fall in line with base rates.