How to Choose a Mortgage: Key Terms, Types and Tips Explained
Published 25th of January 2012·Updated 30 March 2026
Reviewed by: Reviewed for accuracy April 2026
Choosing the right mortgage can save or cost you tens of thousands of pounds over the life of your loan. The key is understanding what each deal actually includes: the interest rate type, the deal period, the fees and the flexibility terms. This guide explains what to look for so you can compare deals with confidence.
Short Summary
Most borrowers focus only on the interest rate, but the arrangement fee, early repayment charges and overpayment terms matter just as much. Always calculate the total cost over the initial deal period, not just the monthly payment.
There are two core mortgage types: fixed rate and variable rate. Fixed rates keep your payment the same for a set period. Variable rates (including trackers and discount deals) can go up or down with interest rates.
The loan-to-value ratio (LTV) is one of the most important factors in what rate you will be offered. The smaller your deposit relative to the property's value, the higher your LTV and the higher your interest rate will typically be.
A whole-of-market mortgage broker can access deals not available directly to consumers and can advise on which product suits your circumstances. Many brokers charge nothing to you directly, as they receive a procuration fee from the lender.
What is the difference between a fixed and variable rate mortgage?
A fixed rate mortgage charges the same interest rate for an agreed period, typically 2, 3 or 5 years. Your monthly payment stays the same regardless of what happens to the Bank of England base rate. After the fixed period ends, you revert to the lender's Standard Variable Rate (SVR) unless you remortgage.
A variable rate mortgage charges an interest rate that can change. Tracker mortgages move in direct proportion to the Bank of England base rate (for example, base rate plus 1.5%). Discount mortgages offer a reduction off the lender's SVR. Both types mean your payment can rise or fall during the deal period.
Fixed rates are better if you need payment certainty or are concerned about rates rising. Variable rates may cost less if rates are falling or stable, and they often come with more flexibility.
What is LTV and why does it matter?
Loan-to-value (LTV) is the size of your mortgage expressed as a percentage of the property's value. If you are buying a £250,000 property with a £50,000 deposit, your LTV is 80%.
LTV directly affects the interest rate you are offered. Lenders price their risk based on LTV: the higher the LTV, the more risk the lender takes, so the higher the rate.
| LTV | Deposit needed on £250,000 property | Typical rate tier |
|---|---|---|
| 60% | £100,000 | Best available rates |
| 75% | £62,500 | Good rates |
| 85% | £37,500 | Moderate rates |
| 90% | £25,000 | Higher rates |
| 95% | £12,500 | Highest rates |
Saving to push your LTV into a lower bracket (for example, from 90% to 85%) can meaningfully reduce your interest rate and save money over the deal period.
What are early repayment charges and why do they matter?
An early repayment charge (ERC) is a penalty for exiting your mortgage deal before the agreed term ends. ERCs are most common on fixed rate deals and are typically calculated as a percentage of the outstanding loan. On a 5-year fix, you might pay a 5% ERC in year one, reducing to 1% in year five.
If you plan to sell your property within the next two to three years, a mortgage with a high ERC could be very costly. In that scenario, a tracker or variable rate deal with no ERC is often more appropriate.
Always check the ERC schedule before signing a mortgage offer. The information will be in the European Standardised Information Sheet (ESIS) that lenders are required to provide.
What is a mortgage deal period and what happens when it ends?
The deal period is the length of time the initial rate applies, usually 2, 3 or 5 years. At the end of the deal period, your lender automatically places you on their SVR, which is almost always higher than any deal on the market.
Start looking for a new deal three to six months before your current deal ends. Most lenders allow you to lock in a new rate in advance. Failing to act at this point and drifting onto the SVR is one of the most common and avoidable mortgage mistakes.
Can I overpay my mortgage and should I?
Most mortgages allow overpayments of up to 10% of the outstanding balance per year without an ERC. Overpaying reduces your outstanding debt faster, cuts the total interest you pay and can shorten your mortgage term considerably.
Even modest overpayments make a difference. On a £200,000 repayment mortgage at 4.5% over 25 years, overpaying by £100 per month from the outset saves approximately £17,000 in interest and cuts the term by about three years.
Check whether your mortgage allows overpayments before signing, and confirm the annual limit. Some deals cap overpayments at 5% or 10% of the outstanding balance; others allow unlimited overpayments.
Should I use a mortgage broker or go direct?
A whole-of-market mortgage broker searches deals from across the market, including lenders who do not deal directly with the public. They can advise on which products suit your income type (employed, self-employed, contractor), your credit history and your property type.
Many brokers are paid entirely by the lender through a procuration fee, at no cost to you. Others charge a fee, typically £300 to £500. Either way, the access to the whole market and the time saved on research usually justifies using one.
If you have a straightforward application and good credit, you can also apply directly to lenders or use comparison sites such as L&C Mortgages or Habito to get quotes. However, for any complicated circumstances, a broker is strongly recommended.
How much deposit do I need for a mortgage?
Most lenders require a minimum deposit of 5% of the purchase price, which gives an LTV of 95%. However, deals at 90% or 85% LTV offer meaningfully better interest rates and are worth saving for if possible. First-time buyers may also be able to use the Lifetime ISA (LISA) to boost their deposit, as the government adds a 25% bonus on savings up to £4,000 per year.
What is a mortgage in principle?
A mortgage in principle (also called an agreement in principle or decision in principle) is a conditional offer from a lender confirming how much they would be prepared to lend, based on a soft credit check and your income information. It is not a binding commitment, but it shows sellers and estate agents that you are a serious buyer. Most estate agents will ask to see one before accepting an offer.
What credit score do I need for a mortgage?
There is no universal minimum credit score. Each lender uses its own criteria and its own scoring system. Generally, the better your credit history, the more options you will have and the better rate you will be offered. Missed payments, defaults and county court judgements (CCJs) limit your options but do not necessarily prevent you from getting a mortgage. Specialist lenders cater for applicants with adverse credit, though rates are higher.
What is a repayment mortgage versus an interest-only mortgage?
A repayment mortgage means your monthly payment covers both the interest on the loan and a portion of the capital. By the end of the term, you own the property outright. An interest-only mortgage means you only pay the interest each month; the original loan remains unchanged and must be repaid in full at the end of the term. Interest-only residential mortgages are available, but lenders require you to have a credible repayment strategy in place.
How long should my mortgage term be?
A longer term (for example, 30 or 35 years) reduces your monthly payment but increases the total interest you pay. A shorter term means higher monthly payments but less interest overall. Many borrowers choose a longer term to keep payments manageable and then overpay when they can afford to. The term can sometimes be adjusted when you remortgage.