A mortgage where your repayments are guaranteed to stay same for a limited period of time, usually no less than one year and no more than five years. At end of period, you will pay lender's standard variable rate.

Standard variable rate

A mortgage where interest you pay goes up and down, usually in line with Bank of England's base rate.

Standard variable rate with cash back

Same as above with one difference: lender will give you a sum of money (normally a percentage of amount borrowed) as an incentive – ‘cash back'– for taking out mortgage. This can be especially attractive if you need money to make any improvements to your property.

Tracker Rate

Here again, your monthly repayment will vary but only by a certain amount. Your interest rate tracks an index such as Bank of England's base rate for a pre defined period of time. If, for example, it were guaranteed that you would never pay more than 1% over base rate, this is how it would work. If base rate were 3%, your interest rate would be 4%; if base rate increased to 3.5%, you would pay 4.5%. Conversely, if base rate were to fall to 2.25%, you would pay 3.25%.

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With a repayment mortgages entire mortgage is paid back over an agreed period of time. This is referred to as mortgage's term and is usually set at 25 years. When mortgage's term has come to an end, providing all repayments have been met, property will be in hands of homeowner.

A repayment mortgage means that each month you make a payment to your lender which consists of both a repayment of part of loan and a payment of interest on your loan.

You are reducing your debt every month, and as a safeguard you will need to arrange life assurance, which is often a compulsory requirement with mortgage lenders so that should you die before end of term your mortgage will be paid off.

Deciding which mortgage is best for you depends on a few factors, which is why it's important for you to do your financial homework first. Repayment mortgages are regarded as safest option, hence their appeal to more cautious investor. They are certainly much easier to understand and you should have no trouble working out your monthly incomings and outgoings.

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