In the UK, there are two main types of mortgage.  The first is a repayment mortgage.  With this type of mortgage, a borrower is paying off both the interest on borrowing the money to purchase their property and the actual amount they’re buying the property for.  So if they’re buying the property for £100,000 and the interest is £50,000, they will be paying a total of £150,000 over the term of the mortgage. This full amount will be the basis of monthly payments.

The second type of mortgage is an interest-only.  With interest-only mortgages, as the name suggests, you’re only paying off the interest of the mortgage.  So with the property value of £100,000 and interest of £50,000, you are only paying off the £50,000 and so you’re not paying off any of the cost of the property.  This can mean that you need to find another vehicle to be able to pay off the capital of the loan.

Within these types of mortgage, there are many sub-categories, for instance fixed-rate mortgages, tracker mortgages, discounted mortgages and these will dictate how the interest on the loan will be calculated. For example interest can be at a certain rate for a period of time as in the case of a fixed-rate mortgage or it can track the Bank of England base rate or libor rate.

When choosing the mortgage, it’s important that you take advice from someone who understands the implications of the different mortgages on your situation.  You need to be upfront and honest about your situation, and about your income, to make sure you get a mortgage which is both affordable and sustainable.

The types of mortgage available differ on a number of variables and so what’s good for one person may well not be good for another person. Your situation and also the financial outlook of the economy can impact on which decision is best for you.