Mortgage types explained: fixed, variable, fix-then-revert, repayment, interest-only
There are five mortgage structures private property investors actually need to understand. Each one shifts a different risk between you and the lender. This guide is what to choose, when, and why.
A mortgage is a contract that bundles two separate decisions: how you repay the principal, and how the interest rate behaves over time. Most owners treat “the mortgage” as a single product to compare on rate alone, which is why so many end up locked into structures that don’t suit them. This guide separates those two decisions and walks through the five structures that cover ~95% of residential property purchases worldwide.
We’ll cover each structure with: who it suits, who should avoid it, the numbers it produces, and the failure modes. Where useful you can run the comparison yourself in the mortgage calculator — every example below is reproducible there in under a minute.
The two questions, separated
Question 1 — how do you repay the principal?Two answers in practice: capital + interest (“repayment”) or interest only. With a repayment mortgage, every monthly payment includes a sliver of principal so that by the end of the term the loan is at zero. With interest-only, you pay only the interest each month and still owe the full principal at maturity.
Question 2 — how does the interest rate behave? Three main answers: fixed for the whole term, fixed for an initial period then reverts to variable, or variable from day one. There are sub-flavours of each (tracker, discount, capped, offset) but those three cover the main shapes.
Each combination is a real product. UK buy-to-let mortgages are typically “interest-only + fix-then-revert.” French residential mortgages are typically “repayment + fixed for the whole term.” UAE mortgages are typically “repayment + variable.” The combination determines what you owe, when, and what risks you’ve absorbed.
Repayment mortgages: principal is paid down over time
The default in most of Europe. You pay a fixed monthly amount that covers the interest accrued in that month plus a chunk of principal. The split changes over time — early payments are nearly all interest; by year 20 of a 25-year term, you’re paying mostly principal.
Who it suits: anyone who wants to own the property outright at some point. Owner-occupiers, long-hold investors, anyone whose plan requires a debt-free asset by retirement or by sale.
Who should think twice:investors whose strategy depends on recycling capital. If you plan to refinance to release equity every 5 years, you’re paying down principal that you intend to re-borrow — burning transaction costs each cycle.
Interest-only mortgages: principal stays put
The default in the UK buy-to-let market and the standard for some commercial real estate. You pay only the interest each month; at maturity you owe the original principal. Repayment of the principal is your problem to solve at the end — typically through sale, refinance, or another source.
Who it suits: investors planning to sell the asset at maturity (banking on capital growth), investors who want maximum monthly cashflow today, anyone using leverage to amplify yield-on-equity rather than build equity through amortisation.
Who should avoid: owner-occupiers in most markets — many residential regulators have effectively banned interest-only for primary homes because of the maturity-cliff risk. Anyone without a credible repayment plan at maturity.
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Fixed-rate mortgages (whole term)
The interest rate is locked for the entire term. Common in France, Germany (via long Zinsbindung periods), the US 30-year FRM, and some Spanish and Portuguese products. The lender bears the interest-rate risk; you pay a premium for that certainty.
Who it suits: anyone who values payment predictability over potential savings. People who would lose sleep if their mortgage payment could rise. Households where mortgage payment certainty is the difference between solvency and stress.
Who should think twice: investors who plan to sell or refinance within 5–7 years — long fixes typically carry early-redemption charges (sometimes very large, especially in France). The premium for full-term certainty is wasted if you exit early.
Fix-then-revert: the UK default
The dominant structure in the UK. You agree a low rate for an initial fix period — typically 2, 3, 5, or 10 years — after which the loan reverts to the lender’s Standard Variable Rate (SVR). The SVR is usually 2–4 percentage points higher than the headline fixed rate.
The implicit deal: the bank gives you a teaser rate to win your business, knowing that when the fix ends you’ll either pay the high SVR or remortgage. In practice almost every active investor remortgages 2–3 months before the fix ends, which is why the UK has a thriving mortgage-broker industry.
Who it suits:investors with a clear remortgage discipline. Anyone aware that the headline 2-year rate is a marketing number, not the rate you’ll actually pay over the loan’s life.
Who should avoid:investors who don’t want the hassle of remortgaging every few years. The 25-year version costs more upfront but removes the cliff. Anyone who’ll be unable to remortgage at the cliff (changed circumstances, lower income, age) — you’ll be stuck on SVR.
Variable, tracker, and SVR — interest-rate exposure from day one
The interest rate moves with a reference. Three sub-flavours:
- Tracker — explicitly tied to a benchmark (Bank of England base rate + X bps, Euribor + X bps, EIBOR + X bps in the UAE). Moves mechanically when the benchmark moves.
- SVR(Standard Variable Rate) — the lender’s discretionary rate. They can move it whenever they want, though competition keeps it roughly aligned with the market.
- Discount — a temporary discount from SVR (e.g. SVR minus 1.5% for 3 years). The discount is fixed; the underlying SVR moves.
Who it suits: investors who can absorb payment movement — either through liquid reserves or rental income with a strong buffer. Borrowers who expect rates to fall (and who are willing to be wrong about it).
Who should avoid:anyone who’s already at the edge of their affordability calculation. If a 2-percentage-point rate rise would make you sell at a loss, you should be on a fix.
Offset mortgages and other niches
An offset mortgage nets your savings against your loan balance for interest calculation purposes. £200k loan + £40k in linked savings = interest charged on £160k. You forfeit the interest your savings could have earned in exchange for a deeper mortgage interest reduction (which is usually tax-efficient).
Common in the UK with high-income professionals. Common in the Netherlands via the historical “spaarhypotheek” structure (though new ones are now rare). Rare elsewhere.
Capped mortgages are variables with an upper bound — you get the upside of falling rates with a ceiling on the downside. The premium is usually too high to justify unless you have very specific risk constraints.
Decision framework: which structure suits which situation
Real decision-making is multi-axis. Here’s the framework I use when modelling for clients:
- Hold period.<3 years: short fix or variable. 3–7 years: 5-year fix (UK style). >7 years: long fix or full-term fix where available.
- Exit plan. Selling the asset at exit → interest-only is often optimal. Holding past mortgage maturity → repayment.
- Cashflow margin.If your rental cover ratio is below 130% at current rates, you need a fix. If it’s above 180%, you can absorb variable-rate movement.
- Income stability. Salaried with stable income → variable is survivable. Self-employed, commission-based, retired → fix.
- Tax position. In some jurisdictions (e.g. France historical-build, UK personal-name BTL pre-2017) the structure interacts with tax efficiency. Worth a specific accountant conversation before committing.
Country-specific defaults — and why
A quick map of what’s normal where:
- 🇬🇧 UK — BTL: interest-only + 2 or 5-year fix-then-revert. Residential: repayment + 2 or 5-year fix-then-revert.
- 🇫🇷 France — repayment + long fixed (20–25 years). Interest-only banned for most residential purposes.
- 🇪🇸 Spain — was Euribor-tracker historically, now competitive fixed-rate products dominate. Always repayment.
- 🇵🇹 Portugal — mixed: Euribor-linked or short fix (3–10 yrs) then revert. Always repayment.
- 🇩🇪 Germany — repayment + long Zinsbindung (10–20 yrs) then refinance. Negotiated Tilgung (amortisation rate) is separate from the interest rate.
- 🇨🇭 Switzerland — interest-only allowed up to 66.6% LTV (any amount above must amortise). Mix of long fixes and SARON-linked products.
- 🇦🇪 UAE — repayment + variable (EIBOR-linked) with an initial fix period of 1–5 years. Interest-only available for high-LTV commercial / off-plan products only.
- 🇬🇷 Greece — repayment + Euribor-tracker or short fix. Lending market still recovering from the 2010s crisis — choice is narrower.
Full country rules — LTV caps, transfer taxes, typical rates, age limits — are in the mortgage rules by country guide.
The honest summary
There is no “best” mortgage structure. There is only the structure that best matches your hold period, exit plan, cashflow margin, income stability, and tax position. The cheapest-looking product on a comparison site is often the wrong one for you — and the most expensive on paper can be the right one if it removes a risk that would otherwise force a sale.
Spend 15 minutes modelling 3–4 structures against your numbers. The exercise itself usually answers the question.
All five structures, eight countries' rules, and an automatic payment-shock warning if your fix-then-revert jumps more than 25% at reversion.
Use the mortgage calculator →Written for owners managing 2–50 properties. No fluff, no upsells. Unsubscribe in one click.