Different Interest Rates

The different interest rate types are set out below:

Variable Rate Mortgage 

The rate of interest that you pay varies according to changes in the lenders base rate which may, or may not, change in relation to changes in the base rate set by the Bank of England. Sometimes the rate can be linked to the London inter bank offered rate, known as LIBOR.

Discounted Rate

This offers a discount on the rate of interest that you pay, for a specified period. The discount applies to the standard variable rate, so while the amount you pay will always be lower than the standard variable rate, it may still rise and fall in line with movements in the standard variable rate. This works to your advantage when interest rates are low and falling, but less so if they are high and rising.

Fixed Rate 

This offers a fixed rate of interest for a specified time. It offers the security of knowing how much your monthly payments will be for the term of the fixed rate. The lender normally charges a fee for providing the added security of knowing your rate cannot change. 

Capped Rate

With a capped rate there is a ceiling, or cap, that limits the rate of interest you pay for a specified period. If the standard variable rate rises above the cap level, your repayment will remain at the cap level. But if the standard variable rate falls, your mortgage rate will fall too.

Tracker Rate 

With a tracker rate you are guaranteed that a change in the Bank of England base rate (or the LIBOR rate) will be reflected in your mortgage rate, because the tracker rate is linked directly to one or other of those rates. The rate is set at a percentage above the base rate, and this percentage is fixed. So if the base rate drops by 0.25%, your tracker mortgage drops by 0.25% too.

Cashback Mortgages

Cashback mortgages offer a lump sum at the start of the mortgage term to help with furnishing or improving a new home. Be aware that many cashback offers carry early repayment penalties meaning that you may have to repay the cashback amount if the mortgage is redeemed early.

Your home may be repossessed if you do not keep up repayments on your mortgage.