Rate Types

Your home may be repossessed if you do not keep up repayments on your mortgage.

Standard Variable Rate (SVR)

Your monthly repayments rise and fall in line with changes in your lender’s standard variable
rate of interest, not necessarily linked to the Bank of England base rate.

Positives

The lender does not usually charge an arrangement fee.
There are usually no penalties if you redeem the mortgage – often called early redemption penalties.

Negatives

You have no certainty over monthly repayments.
Monthly repayments will be more expensive than other options with an incentivised rate for an initial period.

Discounted Rate

Your lender gives you a discount against its SVR for a set period of time. It will normally revert to SVR after the initial period.

Positives

Repayments are lower than an SVR mortgage.

Negatives

You have no certainty over monthly repayments.
The lender will usually charge a one-off arrangement fee.
There are usually early redemption penalties should you wish to redeem the mortgage during a period set by the lender.

Fixed Rate

The interest rate is fixed by the lender for a set period. It will normally revert to SVR after the initial period.

Positives

Your monthly repayments stay the same even when interest rates rise.
You can budget knowing what your monthly repayments will be.

Negatives

Your monthly repayments stay the same even when interest rates lower.
The lender will usually charge a one-off arrangement fee.
There are usually early redemption penalties should you wish to redeem the mortgage during a period set by the lender.

Base Rate Tracker

During a set period the interest rate tracks the Bank of England’s base rate. The interest rate is expressed as base rate + x%.
The monthly repayments change every time the Bank of England changes interest rates.
Some are ‘Stepped Trackers’ where the margin between base rate and SVR changes at the mortgage anniversary.

Positives

You benefit immediately from any reduction in interest rates by the Bank of England.
Usually repayments are lower than an SVR mortgage.

Negatives

You have no certainty over monthly repayments.
You suffer immediately from any increase in interest rates.
The lender will usually charge a one-off arrangement fee.
There are early redemption penalties should you wish to redeem the mortgage during a period set by the lender.

Current Account

A single account from which you run your day-to-day finances and your mortgage.
It is like a current account with a large overdraft facility secured against your property.

Positives

The lender calculates interest on the current debit balance.
There are no fixed monthly repayments; you can overpay, underpay or take payment holidays as long as the debt is within your agreed borrowing limit.
Your savings effectively earn interest at the mortgage rate.
You effectively have a credit facility where you only pay interest at the mortgage rate.

Negatives

The lender will usually charge a one-off arrangement fee.
The flexible repayment nature means you need self-discipline to ensure you repay the mortgage by the end of the term.
If you are not a higher rate tax payer or have substantial savings, you may be better off with a more traditional option that has a lower interest rate.
Also, other interest options sometimes allow overpayments and offer better rates.

Offset

A similar idea to
the current account mortgage but without a single account.
Essentially, your mortgage debt is notionally reduced
by the balance in your savings account;
you pay interest on this notionally reduced debt.

Positives

You pay interest on a lower balance than with a traditional mortgage.
You can usually overpay, underpay or take payment holidays as long as the debt is within your agreed borrowing limit.
Your savings effectively earn interest at the mortgage rate.

Negatives

The lender will usually charge a one-off arrangement fee.
The flexible repayment nature means you need self-discipline to ensure you repay the mortgage by the end of the term.
If you are not a higher rate tax payer or have substantial savings, you may be better off with a more traditional option that has a lower interest rate.
Also, other interest options sometimes allow overpayments and offer better rates.

Cashback

The lender will usually charge a one-off arrangement fee.
The flexible repayment nature means you need self-discipline to ensure you repay the mortgage by the end of the term.
If you are not a higher rate tax payer or have substantial savings, you may be better off with a more traditional option that has a lower interest rate.
Also, other interest options sometimes allow overpayments and offer better rates.

Positives

Can be useful for first time buyers who may be on a tight budget and could use the cashback for home furnishings.

Negatives

There are redemption penalties should you wish to redeem the mortgage during a period set by
the lender.
The rate is often SVR or very close to it.

Capped

The rate will not rise above a certain level for a set period.

Positives

Offers similar security to the fixed rate.
Initial rates are usually competitive.

Negatives

The lender will usually charge a one-off arrangement fee.
There are early redemption penalties should you wish to redeem the mortgage during a period set by the lender.
Rates are often higher than a fixed rate, and caps are normally only two or three years.

Droplock / Switch to fix

A discount or tracker mortgage, which has an option to switch
to a fixed rate at any point within the initial discount or tracker period without paying any early repayment charges.

Positives

Benefits from base rates when they are low, with the option to switch to the protection of a fixed rate should interest rates look set to rise significantly.

Negatives

There can be an arrangement fee when this is exercised.
There may not be a fixed rate product available at the time the borrower wishes to switch.

Foreign Currency

A mortgage that is not in the same currency as your main income. This means it applies to UK property and
not only to properties abroad.

Positives

If currency exchange rates move in your favour, then the value of your debt can decrease. This can impact it
more than interest and repayments in the short term.

Negatives

You are subject to currency fluctuations as well as interest rate rises, so your debt may increase irrespective of your interest or payments.
Good practice suggests factoring in at least a 20% change in currency values.