Fixed Rate Mortgage
As the name would suggest, a Fixed Rate Mortgage is one where the monthly repayment amount is fixed for a specified period irrespective of changes to the Bank of England’s base rate or the lender’s standard variable rate (SVR). Fixed rate mortgage schemes generally last two to five years, although longer terms are available. At the end of the fixed rate period the interest rate will revert to the lenders standard variable rate (SVR). A fee called an early redemption penalty is likely to be applied if you chose to cancel your fixed rate mortgage within the fixed rate period.
Variable Rate Mortgage
A Variable Rate Mortgage is based on a lender’s standard variable rate (SVR). A lender’s SVR is determined by the lender and the most significant influence on this rate is generally movement on the Bank of England’s base rate. SVRs vary from lender to lender but typically track at a fixed percentage above the Bank of England base rate. While the Bank of England’s base rate may well influence SVRs it is not guaranteed that changes in the base rate will reflect in changes in the SVR.
Discounted Variable Rate Mortgage
A Discounted Variable Rate Mortgage is offered at a rate that is discounted from the lender’s standard variable rate (SVR) for a set period – usually two years, though some could be up to five years in length. As the lenders SVR moves up or down, the discounted rate moves up or down by the same amount.
Tracker Rate Mortgage
This mortgage type follows movement in the Bank of England base rate at an agreed differential. The Tracker rate mortgage is usually available for a fixed period or the lifetime of the loan. The most common tracker rate period is two years, though many mortgage lenders now offer three, five or even ten year tracker rate mortgages. If the tracker rate is for a set period of time, the mortgage will revert to the lender’s standard variable rate (SVR) at the end of the tracker rate period.
An Offset Mortgage allows for your main current account or savings account (or both) to be linked to your mortgage (all are usually, but not always, held with the mortgage lender). Each month, the amount you owe on your mortgage is reduced by the amount in these accounts before working out the interest due on the loan. It’s like a reward for frugal banking by your lender. So as your current account and savings balances go up, you pay less on your mortgage. As they go down, you pay more.
Your property may be repossessed if you do not keep up repayments on your mortgage.