When it comes to choosing a mortgage your choice is essentially between a variable rate – one that can change – and a fixed rate, which will not change for a certain period of time.
Tracker and Discount rates
There are typically two types of variable rate mortgage: trackers and discount.
Tracker mortgages mirror the movements of the base rate, the benchmark interest rate set by the Bank of England. They will rise or fall in line with changes in base rate, plus a set percentage. For Example if the Bank of England base rate goes up by 0.5% then your rate would increase by the same amount. This means that your monthly payments would also increase.
A discount rate mortgage will follow a lender’s Standard Variable Rate (SVR). Unlike a tracker it can therefore increase or decrease independently of the base rate.
With a fixed rate the interest rate and the monthly payments will be set for a period of time. This could be for two, three years, or five, or even longer. The rate that you pay will not change during this time, but will revert back to the lenders standard variable rate after it finishes. This is often a good time to look for a better deal.
What happens at the end of my deal period?
Once your deal period has ended you will move on to the lenders Standard Variable Rate which will usually mean that you will be free to move your mortgage with no Early Repayment Charges. Although, you should always check with your existing lender to check that this applies to you.
Standard Variable Rates (SVR’s) are set by lenders and each lender has it’s own. These are usually influenced by the base rate but can change independently of it and can vary quite substantially.
Lenders will usually lock you in for the initial deal period of a tracker or fixed rate mortgage with early repayment charges. These charges vary but are usually between 1% and 5% of the total amount outstanding on your mortgage.
We can help you choose between these different mortgage types. Also, each lender has its own set of criteria which can vary significantly from one lender to another. We will match your circumstances against the lenders criteria along with the best rate available to you.