A repayment mortgage is a term generally used in the UK to describe a mortgage in which the monthly repayments consist of repaying the capital amount borrowed as well as the accrued interest. The mortgage statement, usually received annually, shows the amount borrowed decreases throughout the term.[1]

The big advantage of a repayment mortgage is that at the end of the mortgage term, the full amount of the debt has been repaid. It also removes the risk of having an investment, the performance of which is dependent on the stockmarket. The borrower is less likely to suffer from negative equity because the mortgage balance will be reducing month on month.

As time moves on, the equity percentage in the property increases. However, in the early years the bulk of the mortgage repayments consist of the interest component, so not much of the capital is actually paid off for some time. There seems to be no disadvantage about repayment mortgage.

Interest-only loans are popular ways of borrowing money to buy an asset that is unlikely to depreciate much and which can be sold at the end of the loan to repay the capital.

For example, second homes, or properties bought for letting to others. In the United Kingdom in the 1980s and 1990s a popular way to buy a house was to combine an interest-only loan with an endowment policy, the combination being known as an endowment mortgage.

Homeowners were told that the endowment policy would cover the mortgage and provide a lump sum in addition. Many of these endowment policies were poorly managed and failed to deliver the promised amounts, some of which did not even cover the cost of the mortgage.

This mis-selling, combined with the poor stock market performance of the late 1990s, has resulted in endowment mortgages becoming unpopular.

A fixed rate mortgage (FRM) is a mortgage loan first developed by the Federal Housing Administration (FHA)[1] where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float." Other forms of mortgage loan include interest only mortgage, graduated payment mortgage, variable rate (including adjustable rate mortgages and tracker mortgages) , negative amortization mortgage, and balloon payment mortgage. Please note that each of the loan types above except for a straight adjustable rate mortgage can have a period of the loan for which a fixed rate may apply. A Balloon Payment mortgage, for example, can have a fixed rate for the term of the loan followed by the ending balloon payment. Terminology may differ from country to country: loans for which the rate is fixed for less than the life of the loan may be called hybrid adjustable rate mortgages (in the United States).

This payment amount is independent of the additional costs on a home sometimes handled in escrow, such as property taxes and property insurance. Consequently, payments made by the borrower may change over time with the changing escrow amount, but the payments handling the principal and interest on the loan will remain the same.

Fixed rate mortgages are characterized by their interest rate (including , amount of loan, and term of the mortgage). With these three values, the calculation of the monthly payment can then be done.

Fixed rate mortgages are often referred to as "plain vanilla" mortgage products for their ease of comprehension among borrowers, lacking compounding frequencymany of the dangerous features that can come about vis-a-vis ARMs or floating-rate mortgages with fixed "teaser rates."

In the United Kingdom, a tracker mortgage is a variable-rate mortgage where the amount of interest paid on the loan is linked to the Bank of England base rate by a fixed differential.

For example, if the interest rate is set to 1.5% above the base rate and at the start of the mortgage the base rate is 1%, then the initial interest rate will be 2.5%. If the base rate increases to 1.25% then the interest rate on the mortgage tracks this change and increases to 2.75%. Similarly, if the base rate goes down, the mortgage interest rate will go down by the same amount.

A tracker mortgage is initially taken out for a fixed term, during which this differential will not change. Once the fix term has ended then the mortgage will normally revert to the standard variable-rate offered by the lender. Early termination of the mortgage prior to the end of the fixed term will normally incur a penalty.