As you begin to study the mortgage market it will be helpful to understand the main types available. Most mortgage deals will be covered by the following descriptions:-

Fixed Rate
Here the rate is guaranteed to remain the same, i.e. for a specified period, after which it can be expected to revert to the lender's normal variable rate, or you may have the option to transfer to a new fixed rate.

Capped Rate
This is a form of variable rate where the rate stated is guaranteed not to rise beyond a certain level within a specified period. It may fall during the capped period and can be expected to revert to the lender's normal rate at the end of the capped period.

Variable Base Rate
This is the traditional type of interest rate in the UK, which fluctuates from time to time depending on interest rates.

Cashbacks
This is normally a variable base rate mortgage. Here the lender offers an incentive to the borrower by giving them a lump sum of money. This lump sum is normally a percentage of the amount borrowed and is normally paid at the start of the mortgage.

Discount
This is a discount of the lender's normal variable base rate, lasting for a guaranteed period of time. It will vary in that period if the base rate varies and will revert to the base rate at the end of the period.

Flexible Mortgages
Normally a variable base rate mortgage often offered at attractive rates. With a flexible mortgage you can:-

1) Target early repayment of your mortgage by making additional monthly or lump sum payments.

2) Any additional payments made are immediately deducted from the mortgage balance meaning the next months payments are lower.

3) Once overpayments have been made this money can be borrowed back again or used to fund a "mortgage payment holiday"

4) Flexible mortgages can also be used for saving money as any money placed "on deposit" on your mortgage is likely to be saving you more money than you would be making if you held the money in a deposit account

There are many variations on all of the above and some mortgages will combine more than one of the above features, for example you could have a discount mortgage that also offers a cutback.

Types Of Repayment

There are two main methods of repaying your mortgage:-

Capital and Interest (Repayment)
As well as interest payments being made, the capital loan amount is gradually paid off year by year so by the end of the term of the mortgage - normally 25 years - nothing remains owing to the lender.

Interest Only (Endownment/Pension/PEP)
Only interest payments are made throughout the term of the mortgage with the capital loan remaining payable at the end of the term. To pay this amount, an investment plan - an endownment policy or other suitable savings plan - is taken out at the same time as the mortgage loan and you pay into the investment plan at the same time as making the interest payments on the mortgage.

At the end of the mortgage term, the accumulated value of your investment should not only be sufficient to repay the outstanding loan amount but also leave a surplus which belongs to you.