What kind of mortgage do I need?

Buying a home is one of the biggest financial decisions you can make, so choosing what type of mortgage you need can feel overwhelming. With so many kinds available, from fixed-rate and tracker to interest-only, understanding your options can help you make a confident, informed choice.

Whether you’re curious about your borrowing power as a first-time buyer or exploring your remortgaging options, it helps to have the different types broken down into plain English. Just a quick heads-up before we get into it: we don’t offer mortgages ourselves, so for specific financial guidance, it’s best to consult an independent financial advisor. For those looking for a helping hand, you can also get fee-free mortgage advice through Habito’s expert brokers in the Monzo app.

If you’re wondering where to start but dreading the paperwork, you don’t have to go it alone. Habito handles the heavy lifting by searching through thousands of deals and managing your application from start to finish. Their advice is completely fee-free because they’re paid by the lender once your deal is locked in, so you get professional support without the extra bill.

What’s a mortgage?

A mortgage is the money you borrow from a lender (usually a bank or building society) to buy a home or property. While you're charged a fee for borrowing that money (interest), most people choose a plan where their monthly payment also chips away at the property’s actual price. So instead of just paying for the right to live there, you’re slowly buying the property back until you own it completely.

What’s equity?

Equity is the value of your home or property, minus what’s left to pay on your mortgage. You can use equity as a deposit for your next home, or to borrow more in the future to pay for things like home improvements.   

Types of mortgages to consider 

Mortgages fall into three types: fixed-rate, variable rate and specialist mortgages.

Fixed-rate mortgage

A fixed-rate mortgage is an agreement with your lender to keep your mortgage interest at the same rate for a certain amount of time (known as a fixed period). Typically this fixed period lasts two, three or five years, although some lenders will allow you up to 10 years.

This is the most popular type of mortgage as it can provide a feeling of stability – knowing you’ll pay the same amount each month for a certain amount of time. If you like certainty and want to plan your budget more easily, this type of mortgage could be right for you.

Variable rate mortgage

A variable rate mortgage is an agreement with your lender to align your mortgage interest to a reference rate that can change. Normally this is the Bank of England (BoE) base rate. This is the benchmark that banks and lenders use to set their own interest rates. The Bank of England sometimes changes the base rate to help control inflation and stabilise the economy. When this happens, it has a knock-on effect on the interest rates that banks and lenders offer.

This means the interest rate and your monthly mortgage payments can change at any time during your mortgage deal. There are three types of mortgages within this category:

Tracker mortgage

This is where your interest rate tracks the Bank of England base rate, plus a set percentage, meaning payments can rise or fall over time. This means that if the base rate rises, so will your monthly interest. But if it falls, your interest rate will too. 

This is the most common type of variable rate mortgage.

Standard variable rate (SVR) mortgage

When your mortgage deal expires, you automatically move to your lender’s standard variable rate (SVR). SVR is typically higher than fixed or tracker rates, so some homeowners choose to switch to a new deal to reduce their monthly interest.

You might consider an SVR mortgage as a short-term option if you need flexibility or expect to switch deals soon. Unlike fixed-rate mortgages, SVRs usually let you overpay or leave at any time without early repayment charges, making them useful as a temporary solution while you search for a better deal.

Discounted variable rate mortgage

A discounted variable rate mortgage is a type of SVR mortgage with a defined reduction (e.g. 3%) applied against a lender’s standard interest rate (which is added on top of the base rate) for an agreed period of time. 

During the discount period, your monthly payments will generally be lower, but they can still rise or fall if your lender changes their SVR. It’s one of the more flexible types of mortgage, and can suit people looking for lower initial payments while accepting that rates may fluctuate.

Specialist mortgage

A specialist mortgage is a type of mortgage designed for people with more complex borrowing needs – for example, if you’re self-employed, have an irregular income, have had credit issues in the past, or want to use a family member as a guarantor. These loan types aren’t one-size-fits-all for mortgage applicants, so the rates and requirements can vary.

Want visibility on your mortgage?

Connect a mortgage from any lender to your Monzo current account in 60 seconds. You can find out your equity and how much your home could be worth. See the impact of making regular or one-off overpayments and find out what a change in interest rate could mean for your monthly payment.

You need a Monzo current account to connect your mortgage in the Monzo app. UK residents only. Ts&Cs apply.

Monzo will introduce you to Habito, part of the Monzo group, who will provide you with mortgage advice. They’re a broker so they’ll help you find and arrange the right mortgage, rather than lending you money. If you go ahead, the lender will pay a fee to both Habito and us.

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

Our address is Monzo Bank, Broadwalk House, 5 Appold St, London EC2A 2AG.

Questions? Answers.

What types of mortgages are there?

There are several types of mortgages to choose from. The most common are fixed-rate mortgages, variable rate mortgages (including tracker, discounted and SVR), and specialist mortgages, which can suit more complex situations. Each type works differently, so it’s worth looking into which suits your financial needs and goals.

How much can I borrow?

This depends on your income, outgoings, the size of your deposit, and how long your mortgage term is (a mortgage term is the length of time that you pay back your mortgage). Use a mortgage calculator or speak to a broker to understand what kind of mortgage you can comfortably afford.

What type of mortgage should I get?

There’s no one-size-fits-all answer – the best type of mortgage for you depends on your financial situation.

Is Monzo a mortgage broker?

No, we’re a regulated bank but you can get fee-free mortgage advice through Habito, who we’ve acquired.

Does Monzo offer mortgages?

We don’t offer our own mortgages, but Habito’s brokers can help you find and apply for them. You can also see your mortgage details directly in the Monzo app. You can see your estimated home value, how much equity you’ve built up, and your current loan to value (LTV) band.