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There are only a few main types of mortgage: variable, fixed, capped (and collared), discount, tracker, flexible and current account mortgage. Each of these can have other arrangements attached such as cash-back and redemption penalties.

In addition, a recent innovation is the 'off-set' account that brings together current account, savings, loans and mortgage into one account. - more on these later.

Variable

the interest rate is always related to the Bank of England (BoE) base rate;

BoE base rates rise and fall periodically and therefore mortgage repayments will also rise and fall over the years;

thus benefits from rate reductions, but has no protection from rate increases;

generally has no redemption penalty.

Fixed

the rate is fixed for a specific period - normally two to five years (but can be up to ten);

offers protection from rate increases during the fixed period;

thus offers easy budgeting for fixed period with exact monthly repayments being known to borrower;

normally has redemption penalties attached;

but no benefit gained from rate reductions;

reverts to variable rate after fixed period.

Capped (and collared)

sets a limit on the highest interest rate you can pay (the cap) regardless of BoE rates;

enables benefit from falling rates and some protection from increasing rates;

offers easy budgeting since the maximum cost is known;

normally has a higher interest rate than a regular fixed mortgage;

normally has redemption penalties attached;

very rarely the loan will also carry a collar - essentially a minimum interest rate payable.

Discount

discounted rates are just that - a discount from the prevailing variable rate;

normally used by lenders to attract new customers;

offer true short-term savings (generally, the shorter the discount period, the higher the discount offered);

interest rates (and therefore repayments) vary with normal increases/decreases;

returns to normal higher variable rate at end of discount period;

normally carry redemption penalties.

(Base Rate) Tracker

called 'base rate tracker' or just 'tracker';

similar to normal variable mortgage, but directly linked to BoE base rate (e.g. base rate + 1%) for a specified period;

rates and repayments increase and decrease periodically;

returns to normal variable rate at end of period;

often has redemption penalty.

Flexible

regular overpayments and lump sum payments allowed;

often allow lower payments and payment 'holidays';

drawdown facility enables withdrawals of pre-determined advance;

some lenders provide a cheque book;

not always competitive interest rates;

interest is usually calculated daily thereby saving money when overpayments are made;

some lenders offer discounted, capped and fixed options as part of the product.

Current Account Mortgage

sometimes called an 'Aussie' (where it originated) or an offset mortgage;

is linked to a current account;

and generally takes the benefits of a flexible mortgage and uses the funds held in the current account to offset the interest;

for example, if a borrower has a mortgage balance of £80k and has £2k held in the current account, the customer is only charged interest on £78k;

some lenders are also linking other financial products into the mix, such as savings accounts and personal loans.