Which type of mortgage is right for me?

If you’re buying your first home, you may be wondering what types of mortgages are available and which one you should get that is best for your needs.

This is actually a two-part question:

1. What kind of property are you hoping to buy?
2. What kind of mortgage deal will work best for you?

Most people take out a mortgage to buy a home, so we’ll tackle the second question first. 

Read on to find out how to get the best mortgage deal as a homebuyer.

Why do I need a good mortgage deal?

When you take out a mortgage, you’ll want to know if you can afford the monthly repayments.

The answer depends on how much you borrow, and also on what mortgage deal you have.

Here, you can find out more about the different types of mortgage deals, such as fixed rate, tracker, capped, discounted and variable.

What is a mortgage deal?

A mortgage is an agreement you have with your lender, covering the initial rate of interest you will pay, and how long you’ll pay this rate for.

Usually, the deal will not last for the whole period of your mortgage as most last between two and five years, though a few do run for longer.

Once your deal expires, you will still have your mortgage, but your repayments will now be calculated by the lender's standard variable rate (SVR) of interest. 

How do I get the best mortgage deal?

Getting the right mortgage deal depends on your attitude to risk and your circumstances, including your credit score.

If you are in a strong financial position with a large deposit, or are prepared to pay a higher arrangement fee, then you may be offered a better range of deals to choose from.

However, if you have only a small deposit, and cannot (or don’t want to) pay a big arrangement fee, then your choices will be more limited.

Use our mortgage calculator to find out how much you could borrow, how much your monthly payments are likely to be and what your loan to value ratio would be.

How strong is my mortgage application?

The stronger your application, the more likely you are to be offered a mortgage – and your deal is likely to be better.

To qualify for a lender's best deals, you will need a strong application and a sizeable deposit.

You can get a quick estimate of how likely your application is to succeed by using Unbiased’s mortgage checklist tool. 

This is a simple and free way to check how ready you are, and as it doesn't run a credit check, it won't affect your credit file.

What are the different types of mortgage deals?

The risk when taking out a mortgage is that interest rates may rise in the future, increasing your monthly repayments – perhaps until you can no longer afford them. 

This is why many buyers try to limit their risk through their mortgage deal. Timing is also vital as there are times when a tracker mortgage is a better choice than a fixed-rate one, and vice versa. 

Here are the main types of deal available, and their pros and cons. 

Fixed rate

Risk: Low.

Suitable for: First-time buyers and more cautious people.

With a fixed-rate mortgage, you know how much interest you will pay for the length of the term. 

The only downside is that if mortgage rates fall, you will be stuck paying the same rate of interest.  

Once your fixed-rate deal ends, the interest you pay will switch to the lender’s SVR, which is typically higher and far less predictable. At this point, you may decide to try and remortgage to get a new deal. 

Find out more about fixed-rate mortgages. 

Tracker 

Risk: Medium. 

Suitable for: People who willing to take more risk and pay more if necessary, in exchange for a chance that they may end up paying less. 

A tracker mortgage moves in line with an external interest rate, which is usually the Bank of England (BoE) base rate, and may be set slightly higher or lower. 

The main advantage is your rate falls when the tracked rate falls, but on the downside there is no limit to how high it can go. 

Tracker mortgages are most popular when base rates are high but falling, or likely to fall in the near future as no-one wants to fix their mortgage at a high rate. 

Discounted 

Risk: Medium-high. 

Suitable for: Those looking for the lowest rates, but who can afford to pay more and cope with unpredictability. 

Discount mortgages may offer some of the lowest rates available, so they can be attractive initially.  

However, the discounted period is limited, and the mortgage tracks the lender’s SVR rather than the base rate, so this means rate rises are higher and far less predictable. 

Variable 

Risk: High 

Suitable for: Those who can afford to pay a lot more if necessary, or those unable to obtain any other kind of deal. 

Variable mortgages follow the lender’s SVR, which may rise even if the BoE’s base rate does not. Initially interest rates may be affordable, but be aware these can rise significantly without warning.

Learn more: variable-rate or fixed-rate mortgage: which one should I choose? 

Offset 

Risk: Medium 

Suitable for: Those a variable income but substantial savings. 

Popular among the self-employed and those whose income fluctuates, an offset mortgage is a special kind of deal that lets you use your savings as a kind of ‘counterbalance’ to your mortgage. 

You keep your savings in a special account run by your mortgage provider, and the amount is subtracted from the amount of your mortgage on which you have to pay interest. 

So if you have a loan of £150,000 and there are £20,000 in savings, you’ll only pay interest on £130,000. 

Offset mortgages may also be a way for parents to help their children obtain a mortgage.

You can learn more about what an offset mortgage is here. 

Joint mortgages 

With a joint mortgage, you can take out a mortgage with one or more people. 

You’ll both be responsible for paying the mortgage as you’ll both be on the agreement and property deeds, but you can potentially increase the amount you can borrow.  

It’s worth making sure that whoever you buy property with has a decent credit score, as you’ll be financially linked, so if one person has a bad credit history, this could impact your application. 

Specialist mortgages 

You may qualify for a specialist mortgage if you have bad credit, are self-employed, have a guarantor or are buying a new build that is highly energy efficient. 

There are also mortgages you can use if you want to release equity from your home.  

0% deposit mortgages 

If you don’t have a deposit, you may be able to apply for a 0% deposit mortgage, also known as a 100% or no-deposit mortgage.  

Before you take out a 0% deposit mortgage, it’s worth understanding the pros and cons.  

Dutch-style mortgages 

April Mortgages is launching a new Dutch-style mortgage in April 2024 in the UK, which will be for aspiring first-time buyers with up to a 5% deposit. 

What sets this type of mortgage apart is that the interest rate automatically falls as the homeowner pays off more of the loan, so you don’t have to remortgage.  

However, only April Mortgages offers this type of mortgage in the UK so far.  

What are mortgage fees?

When taking out a mortgage you will have to pay fees, ranging from small to substantial, depending on the deal being offered.

Types of fees may include:

• Arrangement fee: While some mortgages have no arrangement fee, others amount to a few thousand pounds. Some buyers add this fee to the mortgage if they can’t spare the cash up front, but if you do this, you’ll pay more over time due to interest.
• Booking fee: When you agree a deal, you often have to pay a fee upfront to secure it. You should expect this to be between £100 and £200.
• Valuation fees: This is a standard check your lender will carry out on the property to ensure it’s worth the price you are paying for it. The cost of this is about £300, but it can vary. While this valuation is a type of survey, it is no substitute for hiring your own surveyor.

If you are buying your next home, you may have the option of keeping your current mortgage, so you may be able to avoid these set-up fees.

How to find the best mortgage deal

As you can see, there are lots of factors to consider when looking for the best mortgage deal. 

A mortgage broker can explain your options, help you weigh up the pros and cons, and tell you how much you’ll be paying now and if interest rates rise so that you can make a confident decision.

More importantly, they can search the whole of the market to find the best deal for you and maximise the chances of your application being accepted.

Read more about different types of mortgages and the other costs of moving.

Other types of mortgage

If you’re not just buying a home but need a mortgage for some other reason (e.g. buying to let, or buying business property) then you’ll want to find out about other types of mortgages available.

We cover those below, as well as information about Islamic and halal mortgages here, along with the various types of residential mortgage too. 

• Residential mortgages 
• Repayment mortgages 
• Interest-only mortgages
• Combined mortgages
• Commercial mortgages
• Buy-to-let mortgages

Most mortgages are used to buy homes, but other kinds enable you to buy property to let, or business premises such as offices or shops. The other big difference is how you repay your loan.

This quick introduction will help you find the right kind for you.

What if I’m buying a home?

A mortgage used to buy a home is a residential mortgage.

These are available in three types: repayment, interest-only and combined rates.

Repayment mortgage: Your monthly payments will pay back the whole loan, including interest, over the mortgage term (usually 25 years, but it can be longer). This means that when the mortgage term is over, the borrowed money is completely repaid. 

Interest-only: Your monthly payments will pay only the interest on the loan, so it’ll be smaller than with a repayment mortgage. However, at the end of the mortgage term you will have to pay back the original amount borrowed, perhaps by using savings or investments, or by selling the property.

Combined rates: Your mortgage may be a mixture of repayment and interest-only, so that a portion of the loan is paid off by the end of the mortgage term.

What if I want to build my own home?

Rather than buy an existing home, you may be able to buy a plot of land, secure planning permission and manage the building of your own home.

This can work out more affordable for some people, and is a way to get your home exactly as you want it, but it is a major project.

For this, you can take out a self-build mortgage. This loan covers the cost of the plot of land and the amount you need to build the property, including materials and labour.

It’s different from a residential mortgage in that you receive money in instalments rather than one sum, so the lender can ensure you’re spending it on the building project and not on anything else.

Find out more about building your own home.

What if I’m buying to let?

If you want to buy a property to rent out to tenants, you’ll need a buy-to-let mortgage. 

This type of mortgage is more risky for a lender, so your mortgage will probably have a higher interest rate. This type of mortgage generally requires a larger deposit as well. 

Most buy-to-let mortgages are interest-only, but repayment mortgages are also available for this. 

If you're buying a property to rent out to more than three tenants who aren't part of the same household (i.e. paying rent individually), you'll need a special house in multiple occupation (HMO) mortgage.

What if I’m buying business premises?

If you want to buy business premises, such as a shop, you’ll need a commercial mortgage. 

Again, this kind of mortgage carries higher risk for a lender, so this can affect the deal you are offered and the amount you can borrow.

Generally you can’t borrow as much as you can with a residential mortgage.

Commercial mortgages are available as both interest-only and repayment.

It’s worth talking to a mortgage adviser about which kind of mortgage will be best for your business.

How much can I borrow?

For any kind of mortgage, the amount you can borrow is based on a number of variables. 

These include your income, other expenditure, the source of your income (e.g. how reliable is it?), how much money you can put down as deposit, the value of the property, and other factors. 

How much interest will I have to pay? 

The amount of interest you pay depends on several factors: your mortgage’s interest rate, the total amount borrowed, and the duration of the loan.

Higher interest rates and longer terms will increase your total interest payments. For instance, extending a mortgage term from 15 to 30 years can nearly double the amount of interest paid, even with the same interest rate.

Reviewing your mortgage terms and rates will give you a clearer idea of your long-term interest costs.

Why should I use a mortgage adviser? 

The advantage of using an independent mortgage broker is that they can give you independent advice that covers the whole of the mortgage market. 

They work for you, so unlike a provider, they will not try to push you into a particular deal and can offer invaluable advice on which type of mortgage is right for you and how much you can afford. 

Most importantly, they can help you make the strongest possible mortgage application and maximise your chances of getting the deal you want. 

Get expert financial advice

Choosing the right mortgage is a crucial decision that depends on your financial situation, risk tolerance, and long-term goals. With various options available, from fixed and tracker mortgages to specialist and offset deals, understanding each type can help you make an informed choice.

Remember to consider all fees and potential future changes in interest rates when evaluating your options. With the right mortgage, you can take a confident step towards achieving your property goals.

Unbiased will match you with a qualified mortgage broker who will provide valuable insights and help you navigate the complexities of securing the best mortgage deal for your needs.  

If you found this article useful, you might also find our article on what a mortgage in principle is informative, too!