Mortgages

The interest rate you pay will stay the same throughout the length of the deal no matter what happens to interest rates. This type of rate is most suitable when you want your monthly payments to stay the same, helping you to budget your monthly outgoings. You may have to pay an early repayment charge if you want to switch before the deal ends.

This is the normal interest rate your mortgage lender charges to homebuyers and it will last as long as your mortgage stays or until you take out another mortgage deal. With variable rate mortgages, the interest rate can change at any time. Changes in the interest rate may occur after a rise or fall in the base rate set by the Bank of England. This type of rate is selected when you want full freedom to overpay large sum and have no restrictions should you wish to pay in full and leave the mortgage.

This type of mortgage offers a discount off the lender’s standard variable rate (SVR) and only applies for a certain length of time, typically two or three years. The rate starts off cheaper ensuring that your monthly repayments are lower. If the lender cuts its SVR, you will pay less each month and otherwise. SVRs differ across lenders, so don’t assume that the bigger the discount, the lower the interest rate. You may have to pay an early repayment charge if you want to switch before the deal ends.

Tracker mortgages move directly in line with another interest rate – normally the Bank of England’s base rate plus a few percent. So if the base rate goes up by 0.5%, your rate will go up by the same amount. Usually they have a short life, typically two to five years, though some lenders offer trackers which last for the life of your mortgage or until you switch to another deal. If the rate it is tracking falls, so will your mortgage payments and otherwise. You may have to pay an early repayment charge if you want to switch before the deal ends.

Your rate moves in line normally with the lender’s SVR. This type of rate is generally higher than the other variable and fixed rates. But the cap means the rate can’t rise above a certain level. It is your responsibility to ensure that you can afford if it rises to the level of cap. Your lender can change the rate at any time up to the level of the cap; however your rate will also fall if the SVR comes down.

This type of rate is designed to be linked to your savings and current account against your mortgage so that you only pay interest on the difference. You still repay your mortgage every month as usual, but your savings act as an overpayment which helps to clear your mortgage early and save you from paying extra interest over the term of the loan.