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Mortgage Interest Rate

There are five main types of mortgage interest rate:

• Fixed Rate Mortgage - The contract offers a fixed rate of interest for a specified time, which provides the security of knowing how much monthly payment(s) will be during the fixed rate period. If interest rates fall below the fixed rate during the fixed rate period, higher monthly premiums will still be paid.


• Capped Rate Mortgage - With a capped rate there is a cap that limits the rate of interest you pay for a specified period. If the standard variable rate rises above this level, your repayment will remain at the cap level and if the standard variable rate falls below the cap, your mortgage rate will fall too.


• Standard Variable Rate Mortgage - The rate of interest payable varies according to changes in the Base Rate set by the Bank of England. Lenders are free to decide whether to alter the interest rate charged in response to changes in this Base Rate.


• Discounted Variable Rate Mortgage - This offers a discount on the rate of interest payable over specified period. The discount is applied to the standard variable rate, so while the amount payable will always be lower than the standard variable rate, it may still rise and fall in line with movements in the standard variable rate. As a Base Rate Tracker, the mortgage rate will rise and fall in accordance with the Bank of England Base Rate. This works to your advantage when interest rates are low and falling, but less so if they are high and rising.


• Flexible Mortgage - With this type of mortgage there is a minimum amount payable each month, but there is flexibility to vary the repayments. Interest is often calculated on a daily or monthly basis and there may be additional borrowing facilities. Some months the borrower can overpay, thereby reducing the loan amount quicker. Actual terms and conditions vary with each lender and product.