Types of Mortgage Loans: Pros, Cons, and Who They're Best For

Choosing the right mortgage can save you thousands over the lifetime of your loan. It’s worth your time to do the research. 

With multiple mortgage types available in the UK, it’s important to understand how each mortgage loan works. 

If you’re still unsure of which types of mortgage loans are right for you, find out with a clear breakdown of each type, their pros and cons, and who these loans are most suitable for. 

We will provide bespoke advice tailored to your needs, so get in touch with J&M Green Mortgage Services today, and one of our expert mortgage advisors can help you find the right loan for your needs and get it put in place sooner rather than later. 

Fixed-rate mortgage 

A fixed-rate mortgage means that your interest rate remains the same for a set period, typically 2, 3, 5, or 10 years. 

These types of mortgage loans are best for homebuyers who want stability from a monthly mortgage payment that they know won’t change for a set period. It allows you to lock in a rate for peace of mind. 

Pros	Cons
Predictable repayments	Won’t take advantage of potential rate cuts
Protected from rate rises	Penalties for early repayment
Easier to budget	It could work out more expensive if rates fall

Variable-rate mortgage 

A variable-rate mortgage has interest rates that can change at any time; they’re usually influenced by the lender’s Standard Variable Rate (SVR). 

These loads are best suited for buyers who are comfortable with the risk of the payment suddenly increasing or those expecting short-term ownership. 

Pros	Cons
Potential for lower payments if interest rates drop	Payments could also increase
No early repayment charges in some cases	This will usually result in a higher interest rate at the outset
Can be cheaper than fixed initially	Doesn’t provide the certainty of a fixed rate

Tracker mortgage 

Tracker mortgages follow the Bank of England’s base rate, plus a fixed percentage set by your lender. This means that your interest rate and monthly payments will increase or decrease whenever the base rate changes.  

These types of mortgages are best suited for individuals who closely monitor the market and anticipate a stable or declining interest rate in the near future. 

Pros	Cons
Transparent pricing linked to the base rate	No protection if the rate rises
Cheaper when base rates are low	Potential payment volatility

Offset mortgage 

An offset mortgage is when your savings are linked to your mortgage, so the more you save, the less interest you’ll pay on your loan. You’ll only pay interest on the difference between your mortgage and your savings. So, if you have £20,000 in savings and a £200,000 mortgage, you’ll only be charged interest on £180,000. The more you save, the less interest you’ll pay. 

These types of mortgage loans are ideal for borrowers with significant savings who want to reduce interest without locking away their money. 

Pros	Cons
Interest savings	Requires significant savings for large impact
Flexible overpayments	Often higher initial rates
Tax-efficient, especially for higher-rate tax payers	Only a small number of lenders offer these mortgages
Retain access to your savings	You won’t earn interest on your savings

Interest-only mortgage 

Interest-only mortgages are a type of home loan where, for a set period at the beginning of the loan, you pay only the interest on the loan; the capital is repaid later. These loans are best suited for buy-to-let investors who plan to sell or refinance before the interest-only period ends, or who anticipate a significant future income increase. 

Pros	Cons
Lower monthly payments at the start	No capital is being repaid off the mortgage
Cash flow flexibility	Higher payments later if you convert to repayment
Can be useful for short-term ownership	If home values fall, you could owe more than the home is worth

Buy-to-let mortgage 

A buy-to-let mortgage is a type of loan specifically designed for individuals who wish to purchase a property to rent out, rather than live in it themselves. They typically require a larger deposit, typically 25% but it can range from 20% to 40%. 

Pros	Cons
Tailored to rental income rather than personal income in most instances	Higher deposit required
Interest-only options available	The mortgage balance will remain the same
Can become a source of profit	Higher interest rates than residential mortgages

Joint Borrower Sole Proprietor mortgages 

A joint borrower sole proprietor mortgage (often referred to as a JBSP) is a type of home loan where a person or people (some lenders allow up to six applicants) can be added to the mortgage application to boost affordability, but are not named on the deeds. This allows, for example, a first-time buyer to be boosted by their parents' income, with the house remaining just in the first-time buyer's name. Alternatively, children can assist their parents with mortgage affordability as they get older or retire.

Pros	Cons
Helps buyers potentially borrow more than they can afford on their own salary	Any joint applicants will be fully liable for the mortgage payment as well as on their credit file
Can save 2nd property stamp duty being paid if someone who owns their own property already goes on the application	Could create a future stamp duty liability if the joint applicant is added to the deeds in the future
Not all lenders offer JBSP, but several mainstream lenders do	Any additional applicants will be required to pay for independent legal advice as part of the process

Guarantor / Family-assist mortgages 

A guarantor mortgage (often called a family-assist mortgage) is a type of home loan where a family member, usually a parent or close relative, helps you buy a home by offering financial support or using their own assets as security for your mortgage. These mortgages are aimed at first-time buyers or those with a low deposit or limited credit history. 

Pros	Cons
Helps first-time buyers with small or no deposit of their own	The guarantor is financially liable
Can give access to cheaper rates than low deposit mortgage sometimes	Family finances are tied up
Helps young buyers get on the property ladder sooner	Complex legal agreements, and not all lenders will offer them

How to choose the right mortgage for you 

Choosing the right mortgage isn’t just about picking the lowest interest rate; it’s about finding a loan that fits your financial situation and future goals. That’s where a mortgage advisor can help, as they can explain how the types of mortgage loans available to you can better suit you personally. 

These are some of the things to think about: 

Deposit size 

The amount you can put down upfront will influence which mortgages you qualify for. A larger deposit typically provides access to better rates and more options. 

Repayment ability 

Be honest about what you can comfortably afford each month, not just now, but in the years ahead. Fixed-rate mortgages give you predictable payments, while variable or tracker rates may fluctuate, which can be risky if your budget is tight. 

Income stability 

If your income is regular and secure, you may feel comfortable with flexible options. If you're self-employed or your income is less predictable, lenders might look more closely at affordability. 

Long-term plans 

Think about how long you plan to stay in the property. For short-term plans, options such as interest-only mortgages may be suitable. If this is your long-term home, locking in a fixed rate might give you peace of mind. 

Expert tip

• Don’t just look at interest rates, look at: 

• Fees (upfront, exit, or early repayment penalties)

• Flexibility (overpayments, payment holidays)

• Overall cost over the product term

  
  

Speak to an expert

Everyone’s situation is different. A mortgage advisor or a broker can help you navigate the options, run the numbers, and find the types of mortgage loans that are best suited to your financial needs and future plans. 

Get in touch with J&M Green Mortgages Services today and let one of our expert advisors help you secure the right loan.