The House Hop Guide to Mortgages

Interest Rate Options

Standard Variable Rate

This means the bank's Standard Variable Rate — usually around 1-2% above the Bank of England's base rate. Since it is linked to the base rate it will fluctuate during the term of the mortgage.

Before taking out a variable rate mortgage you should consider whether you will still be able to make the repayments if interest rates go up. Your lender should be able to help you with this or you can use a mortgage calculator.

Fixed Rate

Fixed rate mortgages typically last for periods of two to five years, although it is possible to get them for longer and Nationwide have even introduced a 25 year fixed mortgage.

They offer peace of mind for the duration of the fixed rate term, as you know in advance exactly what your repayments are going to be.

Once the fixed rate term is over they revert to the bank's Standard Variable Rate so it's important to be aware of how much you could be paying once this happens.

Discount Rate

Here the lender offers an introductory discount on their Standard Variable Rate, usually for two years. Like the Standard Variable Rate the discount rate will vary, but it keeps payments down for the initial period of the mortgage.

At the end of the introductory period the interest rate will revert to the Standard Variable Rate so you need to know that you will be able to pay the extra once this happens.

Tracker

A tracker mortgage tracks the Bank of England base rate and is set at a rate that is typically around 1% higher. Your payments, of course, will fluctuate with interest rates and while this means that sometimes they could be very low, there is also no cap on how high they could rise.

Capped Rate

The interest on a capped rate mortgage is usually set slightly above the bank's Standard Variable Rate, but with a cap on how high it can go. This offers the security of knowing what your maximum payments might be.