As well as deciding on your repayment method, you’ll need to look at the interest rate deals on offer, for example:
Standard variable rate
With a standard variable rate (SVR) mortgage your payments go up or down according to the lender’s standard interest rate. This is an interest rate that is set by individual lenders and is not directly linked to the Bank of England’s base rate.
Standard variable rate with cash back
With these deals you get a cash lump sum as well as the loan when you take out the mortgage. You’re usually tied into the variable rate for a set period.
Discounted rate
You pay a lower interest rate to begin with then move to another rate (usually the lender’s standard variable rate) after a set period.
Tracker
Tracker rates are linked to the Bank of England rate or some other ‘base rate’. This means they’ll always go up or down in line with changes to the base rate.
Fixed rate
You pay a fixed rate of interest for a set period, so you know exactly what you’ll be paying each month during that time. When the fixed period ends, you’ll usually move to the lender’s standard variable rate. There are usually penalties if you pull out early.
Capped or cap and collar
With a capped rate you pay a variable interest rate, but there’s a ceiling so your payments won’t go above a certain amount for a set period. Some deals include a collar too – this is the lowest rate you’ll get. If interest rates fall below the collar, you’ll lose out.
Which type of interest rate is suitable for you?
Suitability of different deals will depend on your personal circumstances and any tie-ins or penalties that may be attached. Flexible, current account and offset mortgages give you more control to vary your monthly payments. They can be used with repayment or interest only mortgages. For example you can
- Pay less one month and more the next
- Make lump sum repayments (and sometimes draw these back)
- Take a ‘payment holiday’
- Pay off your mortgage early
