Interest only - This is where the borrower pays just the interest on the loan. There is no capital repayment element and therefore at the end of the mortgage term the borrower still owes the amount originally borrowed. Normally a borrower accepts an interest only loan where there is some method of repaying the loan such as an investment that may grow sufficiently over the term to repay the capital. This may be an endowment, an individual savings account, an investment portfolio or pension plan etc.or a combination of any of the investments. Alternatively the borrower may be prepared to repay the capital from the sale of the property or a future inheritance.

Variable rate - This is where the interest rate offered by the lender is variable and therefore although this is set at a particular rate at the outset, the payments and the rate increase and reduce during the mortgage term.

Discounted rate - This is a variable rate but with a discount for a specified period but still increases or reduces in line with the variable rate or rate to which the loan is linked. For example if the variable rate is 7.5% and the borrower has a discounted mortgage of 2% for two years, the payment rate during this period will be 5.5%.If the variable increases during the discounted period by 1% the payment rate will increase to 6.5%.Normally at the end of any discounted period the rate reverts back to the variable rate.

Fixed rate - This is where the lender offers a fixed interest rate, normally for a specified period of time. For example a fixed rate of 6.5% for three years means that the payment rate is fixed during this period irrespective of any fluctuations in the lenders normal variable rate i.e. if the variable rate increased to 9.5% or down to 3.5% the borrower would still be paying at a rate of 6.5%. Normally at the end of any fixed rate period the rate reverts back to the variable rate.

Capped rate - This is a variable rate loan that is guaranteed not to increase above the 'capped' rate offered by the lender for a specific period. Normally at the end of any capped rate period the rate reverts back to the variable rate.

Cash back - This is where a lump sum is paid to the borrower on completion of a mortgage, it may be for a fixed amount or a percentage of the mortgage amount. For example some lenders offer a cash back loan at their normal variable rate as an alternative to a discounted rate.

Combination rates - There are a number of variations and combinations of the alternatives mentioned. For example some lenders offer a fixed or discounted rate that also includes some cash back Others have a 'stepped fixed' or a 'stepped discount', which offers a different fixed or discounted rate over the offer period. Others have a 'discounted and fixed' or a 'fixed and discount', these for example may have a fixed rate in year 1 and a discounted rate in year 2.

Disclaimer: Information is for guidance purposes only. If you are in any doubt as to the suitability of the contracts offered please consult an independent financial adviser. PIA do not regulate mortgage protection and not all forms of critical illness insurance and income protection products.