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The two main types of mortgage and the key terms you need to know when comparing deals.
The most common type for homeowners
Common for buy-to-let investors
Important concepts to understand
Common questions about mortgage repayments, interest rates, and borrowing in the UK.
A mortgage where each monthly payment covers both interest and a portion of the loan balance.
A repayment mortgage (also called a capital repayment mortgage) is the most common type of mortgage in the UK. Each monthly payment is split between interest charges and reducing the outstanding loan balance. Over the full term, you gradually pay off the entire debt.
In the early years, the majority of your payment goes towards interest. As the outstanding balance shrinks, a greater proportion goes towards repaying the capital. By the end of the term, you own the property outright with no remaining debt.
You only pay the interest each month — the original loan amount remains unchanged.
With an interest-only mortgage, your monthly payments cover only the interest charged on the loan. The original amount you borrowed stays the same throughout the term. At the end of the mortgage, you must repay the full loan balance in one lump sum.
Interest-only mortgages result in significantly lower monthly payments but require a credible repayment strategy — such as savings, investments, or the sale of the property — to clear the capital at the end. They are more common among buy-to-let investors than residential homeowners.
Fixed rates stay the same for a set period; variable rates can change with the market.
A fixed-rate mortgage locks in your interest rate for a set period — typically two, three, or five years. Your monthly payments stay the same regardless of what happens to the Bank of England base rate, giving you certainty over your budgeting.
A variable-rate mortgage can change over time. The main types are tracker mortgages (which follow the base rate plus a set margin), standard variable rates (SVR, set by the lender and can change at any time), and discount mortgages (a discount off the lender's SVR for a set period). Variable rates can go up or down, meaning your payments may fluctuate.
Interest is typically calculated daily on the outstanding balance, then collected monthly.
Most UK mortgage lenders calculate interest daily on the outstanding balance. Each day, a small amount of interest accrues based on your annual rate divided by 365. This daily interest is then totalled and collected as part of your monthly payment.
Because interest is charged on the remaining balance, making overpayments reduces the amount of interest you pay over the life of the mortgage. Even small regular overpayments can save thousands in interest and shorten your term significantly.
LTV is the percentage of the property value you borrow — lower LTV means better rates.
Loan-to-value (LTV) is the ratio of your mortgage to the property value, expressed as a percentage. For example, if you buy a £300,000 property with a £60,000 deposit, your mortgage is £240,000 and your LTV is 80%.
LTV is one of the most important factors in determining which mortgage deals are available to you and at what rate. Generally, the lower your LTV, the better the interest rate you can access. Significant rate improvements often occur at key thresholds — 90%, 80%, 75%, and 60% LTV.
Most lenders allow overpayments of up to 10% per year without early repayment charges.
Most fixed-rate and tracker mortgages allow you to overpay up to 10% of the outstanding balance each year without incurring early repayment charges (ERCs). Some lenders offer higher limits or unlimited overpayments on certain products.
Overpayments reduce your outstanding balance, which means you pay less interest over the remaining term. On a £240,000 mortgage at 5% over 25 years, overpaying just £200 per month could save over £40,000 in interest and clear the mortgage almost 6 years early.
Longer terms mean lower monthly payments but more total interest paid.
The most common mortgage term in the UK is 25 years, but terms can range from 5 to 40 years. A longer term reduces your monthly payments but increases the total amount of interest you pay over the life of the mortgage.
For example, a £240,000 mortgage at 5% costs around £1,401 per month over 25 years (total interest: £180,416). Extending to 35 years drops the payment to £1,199 per month but increases total interest to £263,526. Choose a term that balances affordability with the total cost of borrowing.
Expect arrangement fees, valuation fees, legal fees, and potentially broker fees.
Common mortgage fees include: arrangement or product fees (typically £500 – £2,000, sometimes added to the loan), valuation fees (often free on competitive deals), legal and conveyancing fees (£800 – £1,500), and potentially a mortgage broker fee if you use an adviser.
When comparing mortgage deals, look at the total cost over the initial rate period, not just the headline interest rate. A slightly higher rate with no fees can sometimes be cheaper overall than a low rate with a large arrangement fee.
Lenders typically offer 4–4.5 times your annual income, subject to affordability checks.
As a general rule, lenders will offer between 4 and 4.5 times your annual gross income, though some specialist lenders may stretch to 5 or even 6 times for certain professions or high earners. Joint applicants can combine their incomes.
Beyond the income multiple, lenders also carry out detailed affordability assessments. They stress-test your ability to meet payments at higher interest rates and take into account your existing financial commitments, living costs, and credit history. A clean credit record and minimal existing debt will improve your borrowing capacity.
Typically when your fixed-rate deal ends, to avoid moving to a higher standard variable rate.
Most homeowners remortgage when their initial fixed or discounted rate period ends and they would otherwise move to their lender's standard variable rate (SVR), which is usually significantly higher. Starting the remortgage process 3–6 months before your deal expires gives you time to secure the best available rate.
You might also consider remortgaging to release equity, fund home improvements, or consolidate debts — though adding unsecured debt to a secured mortgage means your home is at risk if you cannot keep up repayments.
Whether you're a first-time buyer working out affordability or an investor comparing financing options — here's everything you need to know about mortgage repayments in 2025/26.
When you take out a repayment mortgage, each monthly payment is split between interest (the cost of borrowing) and capital (reducing the loan balance). In the early years, most of your payment goes towards interest because the outstanding balance is at its highest. As you pay down the loan, the interest portion shrinks and more of each payment goes towards repaying the capital.
This is why overpayments early in the mortgage term have the biggest impact — every extra pound you pay reduces the balance that interest is calculated on, creating a compounding benefit over the remaining years.
With an interest-only mortgage, your monthly payments cover just the interest charged on the loan. The original amount you borrowed remains unchanged throughout the term, and you must repay the entire capital at the end — either by selling the property, using savings, or refinancing.
Interest-only mortgages are most commonly used by buy-to-let investors, where the rental income covers the monthly interest and the capital gain on the property provides the eventual repayment vehicle. For residential homeowners, lenders now require a credible and verifiable repayment strategy before approving interest-only terms.
Even small changes in your interest rate can have a significant impact on your monthly payments and total cost of borrowing. On a £240,000 mortgage over 25 years, the difference between a 4% and 6% rate is over £300 per month — and more than £100,000 in total interest over the full term.
This is why securing the best available rate is so important. Even a 0.25% reduction can save thousands over a typical fixed-rate period. Working with a mortgage broker gives you access to deals from across the whole market, including exclusive products not available directly from lenders.
The standard UK mortgage term is 25 years, but you can choose anything from 5 to 40 years. A shorter term means higher monthly payments but significantly less interest paid overall. A longer term reduces your monthly outgoings but increases the total cost of the mortgage.
Many buyers opt for a longer term to keep their monthly payments manageable, with the intention of making overpayments when they can afford to. This gives you the flexibility of lower minimum payments while still being able to reduce the term in practice. Most lenders allow overpayments of up to 10% per year without penalties.
Your loan-to-value ratio (LTV) is one of the biggest factors in determining your mortgage rate. It's simply the amount you're borrowing expressed as a percentage of the property value. The lower your LTV, the less risk the lender takes on, and the better rates you'll be offered.
Key LTV thresholds where rates typically improve are 90%, 85%, 80%, 75%, and 60%. If you're close to one of these boundaries, it may be worth increasing your deposit slightly to cross into a better bracket. For example, moving from 81% LTV to 80% could save you hundreds of pounds per year in interest.