Mortgage Type Terms

Mortgage type labels are easier to use once you separate three different questions:

• how the loan is repaid
• how the rate moves
• whether the mortgage is built for a specific use, such as buy-to-let or later-life borrowing

The terms below are the ones most buyers and homeowners run into first.

Repayment Mortgage

A repayment mortgage is the standard structure where each monthly payment covers both interest and part of the loan itself.

As the term goes on, the amount owed falls. This is the most common structure for residential borrowing and is the type most buyers mean when they talk about a normal mortgage.

Interest-Only Mortgage

An interest-only mortgage is the structure where the monthly payment covers the interest but not the loan balance itself.

Because the capital is still outstanding at the end of the term, the borrower needs a separate repayment plan. This is why interest-only lending is usually treated as a more specific route than a standard repayment mortgage.

Retirement Interest-Only (RIO) Mortgage

A retirement interest-only mortgage is a later-life version of interest-only borrowing.

The borrower pays the interest each month, and the capital is usually repaid when the home is sold. It is a specialist product rather than a mainstream replacement for an ordinary repayment mortgage.

Fixed-Rate Mortgage

A fixed-rate mortgage keeps the interest rate the same for an agreed deal period.

That means the mortgage payment stays stable during the fixed period, which is why many buyers use a fixed rate when they want payment certainty for the next few years. When the fixed deal ends, the mortgage does not stay fixed automatically.

Variable-Rate Mortgage

A variable-rate mortgage is any mortgage where the rate can move up or down during the deal.

Tracker mortgages, discounted variable mortgages and a lender’s standard variable rate all sit inside this broader variable-rate category. The common feature is that the payment can change.

Tracker Mortgage

A tracker mortgage is a variable-rate deal linked to another rate, usually the Bank of England base rate, with a set margin added on top.

If the tracked rate moves, the mortgage rate normally moves with it. This makes the link clearer than on some other variable-rate products, but it also means the payment can rise or fall during the term of the deal.

Discount Mortgage

A discount mortgage is a variable-rate deal where the lender gives a discount from its own standard variable rate for a set period.

The key point is that the rate is still built on the lender’s variable rate. If the lender changes that underlying rate, the payment can still change during the discounted period.

Standard Variable Rate (SVR)

The standard variable rate is the lender’s own default variable rate.

Borrowers often move onto it when an introductory fixed, tracker or discount deal ends and no replacement deal has been arranged. Because it is the lender’s own rate, it is not the same thing as a tracker.

Offset Mortgage

An offset mortgage links eligible savings to the mortgage balance so interest is charged on a smaller net amount.

The savings usually stay accessible, but the trade-off is that the money is being used to reduce mortgage interest rather than earning savings interest in the normal way. This is why offset mortgages are often compared with overpayment decisions rather than with standard savings accounts alone.

Buy-to-Let Mortgage

A buy-to-let mortgage is designed for a property that will be rented out rather than lived in by the borrower.

It is not just an ordinary residential mortgage used for a different purpose. The lender normally assesses the case through buy-to-let rules, and many buy-to-let products are structured on an interest-only basis.

If you want to move from definitions to a real choice, use the Mortgage Basics Guide, the Interest Rates Guide and the Mortgage Calculator.