Types of Interest Rates

Mortgage Advice - Types Of Interest Rates

PROPERTY ADVICE BLOG - Interest rates Explained

•    Variable Rate – the lender dictates how the interest rate varies.

•    Standard Variable Rate – those with a standard residential mortgage will be offered a default variable rate by lenders. Beware, as this is usually the mortgage lender’s highest rate.

•    Discount Rate – in this method the standard variable rate can be reduced over a set period of time. A typical stepped pattern of reduction could be 3% reduction in the first year, 2% reduction in the second year and a 1% reduction in the third year.

•    Fixed Rate – There are two kinds: Long term fixed rate (over 5 years) and Short term fixed rate (typically less than 5 years). In both short and long term fixed rate mortgages the interest remains constant for an agreed period. Short term fixed rate mortgages tend to be more popular as they are less expensive, and incur fewer early repayment charges than the longer term option.

•    Tracker Rate – this rate is connected to a public interest rate such as the Bank of England repo rate. Based on a predetermined margin the tracker rate is commonly connected to LIBOR. This stands for the London Interbank Offered Rate and is the main interest setter in the London wholesale money market.

•    Capped Rate – This interest rate shares many similarities with the fixed rate mortgage. Typically the capped rate is offered over a period between 2 to 5 years and will not rise over the cap. However, the rate may vary below the cap and there could be minimum rate of payment imposed.

The best mortgage advice is to be aware of all types of mortgage in order to find the right deal for you and your finances. Read on to discover all the different types of mortgage on the UK property market, as PROPERTY ADVICE BLOG simplifies the terminology.