Understanding different mortgage types

"Mortgage" is actually shorthand for a family of different products. Within it you'll make several independent decisions: repayment vs interest-only, fixed vs tracker, 2 vs 5 years, standard vs specialist lender, residential vs buy-to-let. Each choice has trade-offs.

This guide is a one-stop overview of the main categories, less deep than our topic-specific guides, but useful to orient yourself before you dive in.

Match the product to what you're buying

Residential mortgage

For the property you'll live in as your main home. Widest choice of lenders and most competitive rates. Regulated by the FCA.

Buy-to-let mortgage

For property you'll rent out. Different lender pool, stress-tested on rent not income, usually interest-only, 5% SDLT surcharge. Some are regulated, most aren't.

Let-to-buy

A specific sub-case: remortgage your existing home onto a buy-to-let basis to rent it out, and buy a new residential home. Useful when you're moving without selling.

Holiday let / Airbnb

Short-term rental lending, fewer lenders, different criteria, often higher rates. Regulatory landscape has tightened in 2024-26 with new licensing rules in some regions.

Bridging loan

Short-term (1-18 months) property finance. See our bridging loans guide. Fast and flexible but expensive.

Commercial mortgage

Lending against commercial property, offices, shops, warehouses. Separate lender ecosystem from residential, typically shorter terms, higher rates, often based on rental income plus business accounts.

Two ways to pay back

Repayment (capital & interest)

Each monthly payment is part interest, part capital. Over the term you steadily pay down the loan to zero. The default option for residential borrowers and the one most lenders require for owner-occupied.

Interest-only

You pay only the interest each month; the capital is repaid in one lump at the end of the term. Lower monthly payments. Standard for buy-to-let. Available on residential only with a credible capital repayment plan (investments, downsizing, pension lump sum) that the lender accepts.

Part-and-part

Mix of repayment and interest-only on the same mortgage. Useful for borrowers who want lower monthly payments than pure repayment but some capital reduction over the term.

Offset

A current account savings balance is 'offset' against the mortgage balance, reducing interest. Useful for borrowers with significant savings who want flexibility but not to lose the capital. Higher-rate taxpayers benefit most (interest saved is effectively tax-free).

Rate type, fixed, tracker or discount

Orthogonal to structure, you'll also pick a rate type. Very briefly:

• Fixed rate: rate locked for 2, 5 or 10 years. Payment certainty, ERCs if you leave early. See our fixed vs variable guide.
• Tracker: rate moves with the Bank of England Base Rate plus a margin. Payment moves when BoE does. Usually lower or no ERCs. Good for flexibility or rate-fall bets.
• Discount (SVR-linked): rate is the lender's SVR minus a discount. Less transparent than BoE-linked because the lender controls SVR.
• Standard Variable Rate (SVR): the lender's default rate. You usually revert to this at the end of a fix or tracker if you don't remortgage. Normally more expensive than a new product, so it is rarely worth staying on.
• Capped: rare. A tracker with a ceiling (the cap). You get the upside of a tracker falling but protection against a steep rise. Costs more than a plain tracker for the protection.