Look out for the fees that you will be charged by the bank for setting up the mortgage, and any early redemption charges payable if you repay your mortgage before the end of the term, or before the end of any special offer period.

There are four main types of mortgage available:

1. Fixed rate: These fix your interest rates for the first 2-5 years, however once this time period expires, your monthly payments return to your lenders standard variable rate (SVR). This means you can budget accurately without having to worry about a sudden increase in your monthly payments.

2. Variable rate: The repayments fluctuate with the lenders SVR, which often results in you paying more than you would with other mortgage types.

3. Capped rate: This allows you to know the maximum amount you will have to pay, and payments will fall if the interest rate drops.

4. Discounted rate: These have a fixed time over which the rates will be reduced, which helps keep costs low in the early years of the loan.

Redemption penalties: Fixed, variable and discounted rate mortgages often have penalties if you stop the mortgage halfway through repayments. These could be a whole six month's interest payments. Always ask about redemption payments when getting a mortgage and read all the small print.

There are three main ways of repaying your mortgage:

Repayment mortgage

The most popular method, this is where you repay your mortgage over a set period of time (normally 25 years). For the first few years of the mortgage most of your monthly repayment is the interest on the loan and only a small amount is repaying any capital. After some time, depending on how much you pay each month, you repay more and more capital, and less interest. You are guaranteed to pay off the mortgage, assuming that you make all the payments on time.

Interest-only mortgages

Here the borrower only repays the interest on the loan each month, which means the debt doesn't ever reduce. The borrower also takes out a saving scheme of some sort that builds up a lump sum to eventually pay back the debt. There are three main types of saving scheme:

• Endowment Policy: You pay cash into an endowment policy, obtained from an Insurance company or independent financial advisor (IFA), throughout the mortgage term.

• ISA Mortgage: An Individual Savings Account that can be sorted out through banks, building societies, insurance companies or from and IFA. In this case the savings money is paid into an ISA and that money is then invested on the borrower's behalf.

• Pension mortgage: Here the savings scheme is a personal pension and thus untaxed. Like the ISA these can be obtained from banks, building societies, insurance companies or from an IFA. The money paid into the pension will be invested on the borrower's behalf to eventually pay back the debt.

You can also have an interest only mortgage without a savings plan however this is rare and you need to prove you are expecting a lump sum of cash to repay the bulk debt such as an inheritance.

New mortgages

As if all the above choices weren't enough, there are also newer kinds of mortgages that have recently been introduced, such as flexible, current account and offset. The Motley Fool website covers these well. Many of them claim to save you lots of money over the lifetime of the loan.

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