A guide to mortgage types

Mortgages come in various shapes and sizes. This simple guide gives you an idea of some of the different types of mortgage available.

Capital repayment mortgages

All M&S Bank Mortgages are ‘capital repayment’ mortgages. This means that each month, as well as paying back the interest due, you will also pay back some of the money borrowed (‘the capital’). By the end of your mortgage term, assuming you have made all the payments on time, you can rest assured that you’ll have repaid your mortgage in full.

‘Interest-only’ mortgages

Some other lenders offer ‘interest-only’ mortgages. With this type of mortgage, your monthly repayment will only cover the interest due – you are not repaying any capital. At the end of the mortgage term, you would be required to provide a lump sum to repay the original loan amount. Please note that M&S Bank do not offer interest-only mortgages.

Types of interest rate

Fixed rate mortgages

Fixed rate mortgage repayments are similar to personal loan repayments in so much as the amount you pay every month will not change during the fixed rate period. At M&S Bank, we currently offer mortgages with a fixed rate over either 2 or 5 years. At the end of the fixed rate period, your mortgage would move to the M&S Bank Standard Variable Rate. This is a rate we set and it can change from time to time during your mortgage term.

Potential advantages

  • You’ll enjoy peace of mind during the fixed rate period, knowing exactly what you’ll be paying – this can help with household budgeting.
  • If you believe interest rates will rise, fixing can shield you from any rate rises during the fixed rate period.
  • If interest rates do rise, your fixed rate will remain the same for the fixed rate period, which may save you money.

Potential disadvantages

  • The fixed rate you pay could be higher than the M&S Bank Standard Variable Rate if interest rates fall during the fixed rate period.
  • You’ll miss out on any potential savings if interest rates fall during your fixed rate period.
  • Early Repayment Charges (ERC) may apply during any fixed rate period.

Tracker mortgages

Unlike a fixed rate, a tracker rate is variable. The rate you pay is usually set an agreed percentage above the Bank of England base rate – it means that the interest rate you pay, and your repayments, will rise and fall as the Bank of England base rate changes. M&S Bank Tracker Mortgages have a fixed period – for instance, we currently offer a 2-year tracker mortgage. Once the tracker period ends, your rate will move to the M&S Bank Standard Variable Rate which is a rate we set and which can change from time to time over your mortgage term.

Potential advantages

  • Your monthly repayments will decrease if the base rate falls.

Potential disadvantages

  • Your monthly repayments will increase if the Bank of England base rate rises - it is potentially harder to balance your household budget, and you’ll need to know you can cope with an increase in monthly payments.

Early repayment charges

An early repayment charge is a charge you may have to pay if you repay your mortgage or switch your mortgage to another rate or lender whilst you are in an agreed period (e.g. a fixed rate period). Some lenders allow you to make limited overpayments each year without incurring any early repayment charges. With M&S Bank Fixed Rate Mortgages, you can make overpayments up to the value of 10% of your mortgage balance at the start of each year of your mortgage during the fixed rate period without incurring any early repayment charges.

Our Tracker Rate mortgages allow you to make unlimited overpayments without incurring any early repayment charges, at any point during your mortgage term.

First time buyers

We have a range of mortgages, exclusively designed for first time buyers. We understand how difficult it can be to get onto the property ladder, so we have created a range of mortgages to make that first move achievable.

The right mortgage for you

M&S Bank advisors provide advice on M&S Bank Mortgages and talk you through your options. Please call us on 0800 923 1536 to find out more. Lines are open 8am–8pm Monday to Friday and 8am–1pm Saturday (excluding bank holidays.) Calls are recorded.

Published: 26 January 2018

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The material contained in this article is intended for information purposes only and not as advice.

You should obtain professional legal or other advice if you are unsure about the effect on you of any matter in this article.

Your home may be repossessed if you do not keep up repayments on your mortgage