Interest Rates

Another decision you will be faced with when taking out a mortgage is the option of interest rates, which come in several different forms. These include fixed rates, flexible mortgages and base rate trackers. When choosing the right rate for you, future interest rates and potential financial issues that may be faced must be taken into consideration to ensure that the most appropriate interest rate for each individual case is chosen.

What are they?
What do they mean?
Is it right for me?

Standard Variable Mortgage Rate
Depending on economic conditions, lenders set a standard variable rate, essentially meaning that your monthly mortgage payments can go either up or down according to any changes in interest rates, however a SVR does not track above the Bank of England Base Rate at a set percentage. These rates tend to be most suited to those who may have a slightly unexpected and unpredictable future or for customers who may not wish to commit to a product which includes a period of early repayment charges.

Fixed Rate Mortgage
These mortgages allow lenders to offer a mortgage where the interest rate remains fixed for a certain period; two years, five years, ten years etc. After the fixed rate term ends, the interest rate then lapses into a standard variable rate available at that time. At this point, the lender may offer you a new product or you could consider moving your mortgage to an alternative lender. This type of rate is useful for individuals who want to know what their mortgage payments will be for that set period. Although able to protect individuals from rises in variable and bank base rates, fixed rates also have the potential to work out more expensive if general interest rates fall below the level of the fixed rate.

Discounted Rate Mortgage
Many mortgage lenders also offer a discount from the standard variable rate to borrowers for a set period, however these mortgages may attract penalties for early repayment.

Capped Rate Mortgage
With these mortgages, borrowers will pay the standard variable rate with a defined upper limit in the form of a “cap”. This means that the interest is guaranteed not to rise above this set level for the period in which the cap is in place, providing a similar advantage as fixed rate mortgages in protecting against rising interest rates.