The range of mortgages available can be overwhelming for first time buyers and makes independent financial advice crucial.

The amount that you can borrow will be based on the size of your deposit and how much you earn. Lenders will usually lend you around three times your annual salary or if you are buying with a partner this rises to three times the first income plus the second income, or two and a half times your joint income.

Before you start looking at houses you need to know what you can afford so talk to various lenders and get a mortgage in principle'. This is a written conditional offer from a mortgage lender based on the information that you've provided them with. It will show estate agents that you're serious and give you an edge over the competition.

Despite all the confusing names, there are two main types of mortgage. A repayment or capital mortgage is the only way to guarantee that the house will be yours after you've repaid the loan. Mortgage repayments are made up of capital repayments (paying back the money borrowed) and interest repayments. When you have a repayment mortgage you mainly pay off the interest in the early years and then start paying back the capital as well.

The second main type is an interest only mortgage where you only directly pay off the interest and simultaneously make payments into a fund like an ISA to eventually pay of the capital. It's best to talk to an independent financial advisor as these mortgages could result in you losing your home if your final fund is not enough to pay off the debt. This happened to a lot of buyers in the 80s and 90s who took out endowment mortgages which were a combination of savings, investments and life assurance.

When choosing a mortgage you need to find out how much the interest rate is on your loan and what type of interest repayment arrangement there is:

Fixed Rate: Your mortgage lender fixes the rate on the loan for a time period such as one to five years, before the rate becomes variable.

• Pros: You'll know exactly what you owe for the first few years.

• Cons: If interest rates drop you could end up paying more, but equally if rates rise you will save money. Look out for early redemption penalties if you change mortgage within the fixed term or afterwards.

  Variable rate: The Bank of England sets the base rate- the standard interest rate. Lenders set their variable rate about 1 or 2 per cent higher than the base rate. Shop around as lenders rates can vary by up to 1 per cent, which on a loan of £100,000 over 25 years can make a difference of £41,000 in interest.

• Pros: If interest rates drop you'll save money.

• Cons: Likewise if rates rise, so will your repayments.

  Capped rate: Lenders can put a cap' or limit on the maximum interest payment over a specific time. It can fall if the variable rate drops.

• Pros: You get the best of both worlds, for example if the variable rate is higher than the capped.

• Cons: Limited deals on the market - sometimes they are not as competitive as the interest rates are higher. You'll also have to pay an admin charge of £95-200.

  Discounted rate: To attract new customers lenders offer discounts on their standard variable rate; payments can still go up or down, but overall you'll be paying less. After the discount period, you switch to their usual variable rate.

• Pros: Pay less.

• Cons: Check the lenders track record for variable rates as they may be high. Check there are no large penalties for leaving after the discount period. You'll be locked in an agreed term and will have to pay more if base rates increase.

  5:22pm Wednesday 26th March 2008

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