Types of mortgages: Different mortgage types explained

Quick answer: Different types of mortgages suit different needs. A residential mortgage can help you buy a home, while a buy-to-let mortgage lets you rent property out. There are joint mortgages for buying with someone else, and bad credit mortgages if your credit score is low.

Mortgage types come in all shapes and sizes. And because a mortgage may be the largest financial commitment you make, it’s important to find one that suits you. The right mortgage type may depend on your reasons for borrowing, what your finances look like, and what you’re comfortable with. You can use this guide to get a better understanding of mortgage types and find where to learn more.

What types of mortgages are there?

There are lots of mortgage types, but two main things make them different — who they’re for and how they’re repaid. Different types of mortgages can help you move home, buy with someone else, lease property or free up cash. Some mortgages are designed for people who have poor credit or are self-employed. Mortgage types like interest-only, repayment, fixed and variable can affect how much you pay and when.

We’ve explained the different types of mortgages in more detail below.

Mortgages for different types of buyers

Some mortgages may fit you better depending on what type of borrower you are — whether that’s a first-time buyer, home mover, joint applicant, investor or someone in later life. Learn more about each mortgage type for different buyers below.

Want to see real offers? With Experian, you can compare residential mortgages from across the UK market before you apply. It’s completely free and won’t affect your credit score.

We’re a credit broker, not a lender.

First-time buyer

Want to get your foot on the property ladder? This kind of mortgage is designed for people buying their first home. Mortgage companies often see first-time buyers as higher risk, but if you impress them, you can still get decent rates and even incentives, such as cashback. Even if you have a small deposit, there may be a way for you to get a first-time buyer mortgage.

Find out more about first-time buyer mortgages.

Home-mover

Upsizing, downsizing, or simply relocating? Home-mover mortgages are for people who already own a home and are looking to move. You may be able to ‘port’ your existing mortgage — which means transferring it to your new property (though not necessarily at the same rates). Or, you can start a new mortgage from scratch.

Find out more about home-mover mortgages.

Remortgaging

Remortgaging means changing the mortgage on your current home — either by getting a different deal with your existing lender, or by switching to a new mortgage company. Many people remortgage to get a better interest rate, change their monthly payments, or release equity to spend on things like home improvements. However, there are several things to consider first, such as early repayment fees.

Find out more about remortgaging.

Lifetime mortgages

A lifetime mortgage is generally for people over 50. It’s a non-standard mortgage that lets you free up cash from your home without selling or moving out. The lender gives you a lump sum or regular amounts over time. When you die or go into long-term care, they’ll take what you owe from the sale of your home. If there’s money left over, it can go to your care or the people who inherit from you. There are risks for you and your inheritors, and the cash payments can make you ineligible for benefits like Pension Credit.

Find out more about lifetime mortgages.

Joint mortgages

You usually need a joint mortgage if you want to buy property with others, like your partner or family members. The lender will look at information from all applicants to make a decision, including each person’s income and credit score. If you’re approved, each person is fully responsible for paying the mortgage back. You’ll also have a financial association linking your credit reports. Think about how you want to share ownership of the property — as joint tenants or tenants in common.

Find out more about joint mortgages.

Mortgages for the self-employed

Applying for a mortgage is a bit different when you’re self-employed. You may need to provide two or more years of certified accounts, SA302 forms or tax year overviews from HMRC. You can usually apply for the same types of mortgages as employed people. Each lender has their own way of assessing your self-employed income — for example, they may take an average or use your lowest earning year as a baseline. Some lenders specialise in mortgages for the self-employed.

Find out more about mortgages for the self-employed.

Mortgages for people with poor credit history

Struggling to get approved? Some lenders offer mortgages for people with low credit scores — often called ‘bad’ credit mortgages. You’ll usually get a smaller loan and pay a higher interest rate, which helps the lender manage their risk. The upside? Your chances of approval could be better with this type of mortgage.

Find out more about ‘bad’ credit mortgages.

Guarantor mortgages

A guarantor mortgage may be another option if you need help getting approved. When someone is your guarantor, they sign an agreement that says they’ll pay your mortgage if you cannot. They may need a good credit score. Both of you should understand the risks you’re taking on before applying.

Find out more about guarantor mortgages.

Buy-to-let mortgages

Buying property to lease out? Then you’ll probably need a buy-to-let mortgage. These often come with high interest rates and may require a large deposit. Affordability checks and repayment schedules tend to be different for buy-to-let mortgages, so make sure you know the facts before applying.

Find out more about buy-to-let mortgages.

Mortgages for different ways to pay

Some mortgage types have different ways of working out your interest costs, monthly payments and deposit. The right one for you may depend on your finances and how comfortable you are with risk. We’ve explained some important types below to help you decide with confidence.

Variable rate mortgages

A variable interest rate can go up or down. This often happens if there’s a change in the Bank of England’s base rate. Your mortgage payments will cost more if your rate rises, and less if it falls. Lenders have a standard variable rate (SVR) that’s usually high. It’s also possible to get a discounted variable rate for a few years or more.

Learn more about variable rate mortgages.

Fixed rate mortgages

A fixed rate does not change, so your payments should be the same each month. You will not save money if the base rate goes down, but you’ll be safe from any rate rises. Lots of residential mortgages (the type for buying a home you’ll live in) start with a fixed interest rate. It’s common to get 2-year and 5-year fixed rates, with some lenders even offering 10-year fixed rates. When your fixed rate ends, you’ll be put on your lender’s standard variable rate (SVR), which may be higher. It can be a good idea to switch to a new fixed rate. Just be careful — there’s an early repayment fee for switching before your fixed rate ends.

Learn more about fixed rate mortgages.

Tracker mortgages

A tracker rate is set at a fixed percentage above an independent rate (usually the Bank of England base rate). If that rate changes, so does yours. You can have a tracker rate for a set or open-ended period. The rate you’re offered may depend on things like your credit score and deposit size.

Learn more about tracker rate mortgages.

Shared ownership mortgages

You can use this type of mortgage to part-buy a home through a shared equity scheme – which usually means a smaller deposit and lower mortgage payments. The government’s Shared Ownership scheme lets you buy 10% to 75% of a home and pay rent on the rest. You can buy more of your home over time. There are rules about who can apply, the property you buy and the sale of your home.

Learn more about shared ownership mortgages.

Offset mortgages

If you have savings, an offset mortgage could lower your mortgage costs. This non-standard mortgage is linked to your savings and current account. Your savings reduces the amount you pay interest on. For example, if you owe £100,000 on your mortgage and have £20,000 saved, you’ll only pay interest on £80,000. Just so you know, this type of mortgage is less common and often has higher interest rates.

Learn more about offset mortgages.

Interest-only mortgages

With this type of mortgage, your monthly payments only pay off the interest, not the amount you borrowed. You’ll need a solid plan for repaying the full amount when the mortgage term ends. Interest-only mortgages aren’t for everyone, so make sure you understand the risks.

Learn more about interest-only mortgages.

Low deposit mortgages

A 95% LTV mortgage allows you to put down just 5% of the property price as your deposit. These low deposit mortgage types often have higher interest rates, and you usually cannot buy a new-build home. But for some people, it’s a way to move sooner or leave more savings for other stuff. Make sure you can comfortably afford the payments before applying.

Learn more about 95% LTV mortgages.

How to choose the right mortgage type

Wondering what type of mortgage you should get? It’s good you’re asking — there are many different mortgage types and none of them fits everyone. Get on the right track by thinking about:

• Why you need a mortgage. Look for a residential mortgage if you’re borrowing for a home you’ll live in, or a buy-to-let mortgage if you want to lease out the property.
• Your situation. Consider whether you need a specialist lender for your situation — for example, if you have a low credit score, are over 50 or are self-employed.
• What you can afford. Your mortgage type can affect what you pay and when. Before applying, calculate the mortgage payments and check them against your monthly budget.
• Deposit/LTV. A mortgage with a lower loan-to-value ratio (LTV) can get you a cheaper rate, but it means putting down a larger deposit. How much deposit will you need to get the LTV you want?
• Interest rate type. It’s common to start on a fixed rate, although some people prefer a variable or tracker rate. Wondering how long to lock in a fixed rate? Consider whether rates are likely to go up or down and your comfort with risk. And remember, if you want to switch mortgages in the future, there’s a fee if you’re still on a fixed rate.
• Repayment schedule. Think carefully about your mortgage term — a longer term means smaller monthly payments but costs more overall. Another way to lower payments could be an interest-only mortgage if you have a solid plan for paying it off when the term ends.
• Flexibility. Consider how a mortgage may fit your situation in the future. For example, do you need the flexibility to make overpayments without an early repayment fee?

Compare mortgages with Experian

Now you have a better understanding of mortgage types, it’s easy to search mortgages with Experian. We show you top offers from 100+ trusted lenders. Searching is free and will not affect your credit score. Just remember, we’re a credit broker, not a lender.

Getting ready to apply for a mortgage? It’s worth checking your free Experian Credit Score. This gives you an idea of your chances of approval, and you can look into improving your score if you need to. Checking your score is free and will not affect it.

Frequently asked questions

How do I find a mortgage lender?

You can search for mortgage lenders yourself online, but this can take a lot of time and effort. Another option is to use a comparison site — you can search mortgages from over 100 lenders with Experian. If you need more support or a specialist mortgage, consider using a mortgage broker. Brokers can help you find mortgage lenders and arrange a mortgage. Some have fees and some may not have access to the full market.

What type of mortgage can I get?

The sort of mortgage you can get depends on what you need it for and your financial situation. Look at residential mortgages if you want to live in the property, or buy-to-let mortgages if you want to lease it out. Having a larger deposit means you can get a lower LTV mortgage, which usually offers a cheaper rate. If you’re finding it difficult to get approved, you may want to look into a ‘bad’ credit mortgage, guarantor mortgage or shared ownership mortgage.

What is the best mortgage type for first-time buyers?

Each person’s needs and situation are different, so there’s no one ‘best’ mortgage type for first-time buyers. However, some mortgages are designed to make it easier to get onto the property ladder. Lenders may offer 95% mortgages that only need a 5% deposit, or perks like cashback schemes. You’ll still need to meet their affordability criteria to get approved.

What is the difference between tracker and fixed mortgage?

One difference between tracker and fixed mortgage is that a tracker rate can go up and down while a fixed rate stays the same. A tracker rate is a type of variable rate that’s set at a fixed percentage above an independent rate, such as the Bank of England base rate.

How do I choose the best mortgage deal?

The best type of home loan for you really depends on your unique needs and situation. It can help to read our guides on different types of mortgages, search for mortgage offers with us, or talk to a mortgage broker like our trusted partner, Picnic.