A Picnic Guide To Choosing Your Mortgage

Choosing your mortgage doesn’t have to feel like a maze. Whether you’re moving to a bigger house, buying your first home, or investing in property, there’s definitely a mortgage out there for you. 

After looking through our jargon-free guide to mortgages, you’ll be in a far better position to make the right mortgage choice that fits your needs.

Mortgage Repayment Methods

Before choosing a mortgage, you need to decide how you want to pay it back. There are two main ways to do this:

Capital Repayment Mortgage

With a capital repayment mortgage, your monthly payments chip away at both the loan itself and the interest. By the end of the term, you own your home outright. This repayment method is typically the most popular choice for residential mortgages. 

Why it’s great:

• You’re paying off your loan bit by bit.

• No nasty surprises—you know you’ll be mortgage-free at the end.

• You’ll pay less interest overall compared to interest-only mortgages.

What to watch out for:

• Higher monthly repayments than interest-only mortgages.

• Less flexibility if you need lower payments for a while.

• The capital amount reduces more slowly in the first few years of your mortgage term. 

Interest-Only Mortgage

As the name suggests, for interest-only mortgages, your payments cover just the interest each month. That means lower monthly costs—but you’ll still owe the full loan amount at the end of the term.

Why it’s great:

• Lower monthly payments.

• It can work well for buy-to-let investors or those expecting a financial windfall. 

What to watch out for:

• You’ll need a solid repayment plan to pay off the loan.

• Interest-only mortgages normally have stricter lending criteria.

• Most lenders will typically ask for a higher deposit.

To find out more about mortgage repayment methods, read our guide: Interest-Only Mortgage or Capital Repayment: Which to Choose? 

Fixed-Rate Mortgages

A fixed-rate mortgage locks in your interest rate for a set term (usually 2, 5, or 10 years). This means your payments stay the same throughout, no matter what happens to interest rates during that time.

Why it’s great:

• Predictable payments make budgeting easier.

• Protects you from any interest rate rises during the term.

What to watch out for:

• If interest rates drop, you won’t benefit.

• Switching mortgage deals before the fixed-rate term ends can be costly due to early repayment charges that can be applied. 

To find out more, read our guide: Fixed-Rate Mortgages Explained. 

Variable-Rate Mortgages

Variable-rate mortgages can change over time, meaning your payments can go up or down. There are a few different types:

Tracker Mortgages

Tracker mortgages follow the Bank of England’s base rate. If it goes up, your payments increase. If it goes down, your payments also come down.

Why it’s great:

• If rates drop, you’ll pay less.

• Most tracker mortgages don’t have early repayment charges, making it easier to switch to another interest-rate deal

What to watch out for:

• If rates rise, so do your payments.

• Less certainty and harder to budget compared to fixed-rate mortgages.

For more information, read our guide: Tracker Mortgages Explained. 

Discounted-Rate Mortgages

These types of mortgage rate deals offer a discount on the lender’s Standard Variable Rate (SVR) for a set period. Your rate can still rise and fall during the term, but it will always be lower than the SVR.

Why it’s great:

• Lower initial monthly payments.

• Can be cheaper than fixed-rate deals with lower fees and repayment charges.

What to watch out for:

• Rates can still rise unexpectedly.

• Volatile rate rises and reductions make budgeting more difficult

Capped-Rate Mortgages

These types of mortgage rate deals have a maximum rate cap, so your payments won’t go above a certain level, but they can still fall if rates drop.

Why it’s great:

• Gives you protection against steep rate rises.

• Allows you to benefit if rates decrease.

What to watch out for:

• Rates are often higher than standard tracker or discounted-rate mortgages.

• The cap may still be relatively high and payments can still increase if rates rise.

For more information, read our guide: Variable-Rate Mortgages Explained. 

Standard Variable Rate (SVR) Mortgages

The SVR is the lender’s default interest rate that you move onto when your fixed or variable-rate deal ends. It’s often higher than other rates and can fluctuate at the lender’s discretion.

Why it’s great:

• No early repayment charges, so you can switch to a lower mortgage-rate deal anytime.

• Suitable for those looking to move soon or remortgage quickly.

What to watch out for:

• Higher rates than all other mortgage types.

• Payments can change unpredictably.

Buy-to-Let Mortgages

A buy-to-let mortgage is a home loan for landlords looking to buy a rental property. They are typically repaid on an interest-only basis, meaning lower monthly payments, but the original loan must be paid back in one lump sum at the end of the term.

Why it’s great:

• Keeps payments low.

• Rental income can be used to cover the mortgage costs.

• Lenders will allow the rental property to be used as the repayment vehicle for the mortgage loan.

What to watch out for:

• Requires a bigger deposit than residential mortgages (usually 20%-25%).

• Higher interest rates and fees than residential mortgages.

• Lenders assess your eligibility based on potential rental income.

To find out more, read our guide: Buy-to-let Mortgages Explained. 

Bad Credit Mortgages

A bad credit mortgage works exactly the same as a traditional mortgage but is designed for someone with a low credit score. If you’ve had credit issues in the past - County Court Judgment (CCJ), late payments, bankruptcy, etc. - a specialist bad credit mortgage lender could still help you secure a home loan. 

Why it’s great:

• Opens doors for those rejected by mainstream lenders.

• Can help rebuild credit over time.

What to watch out for:

• Higher interest rates.

• Often requires a larger deposit.

For more information, read our guide: How To Get A Mortgage With Bad Credit. 

Mortgage Schemes

There are several special mortgage schemes - some of which are backed by the UK Government - available to help people secure the lending they need (usually with a low deposit) to buy a property. The main schemes currently available are: 

• First Homes Scheme. Available in England only and designed to help first-time buyers and key workers buy properties in their local area at a discount of 30% to 50% of the original value. 

• Shared Ownership. This scheme allows you to buy part of a new property - usually between 25% to 75% - and then pay rent to a housing association on the remainder. The deposit you pay is based on the amount you buy, not the total property value. 

• Deposit Unlock. Offers you the opportunity to buy a brand new home with just a 5% deposit and use a 95% loan-to-value (LTV) mortgage for the remainder. This scheme is backed by a mortgage indemnity, paid for by developers, to encourage more lenders to offer higher LTV lending on new properties. 

• Mortgage Guarantee Scheme. Similar to Deposit Unlock, but backed by the government, it also offers someone with a low deposit (minimum 5%) the chance to get onto the property ladder. Unlike Deposit Unlock, you can consider buying either new or pre-existing properties. 

• Right to Buy. Helps council tenants to buy their homes at a discount. Right to Acquire is a similar scheme, but for housing association tenants. 

Specialist Mortgages

For unique situations, specialist mortgages provide tailored solutions:

• Guarantor Mortgages. A family member guarantees your loan, agreeing to make the repayments if you’re unable to.  

• Joint Borrower Sole Proprietor Mortgages. Lets multiple people contribute to repayments while keeping ownership in one name.

• Unencumbered Mortgages. For homeowners who own their property outright and want to borrow against it.

• Offset Mortgages. Links your savings to your mortgage balance, reducing the interest payable and helping you pay off your mortgage sooner. 

• Green Mortgages. Offers better rates for more energy-efficient homes.