Mortgage rates
The most common types of mortgages are: fixed rate, variable rate and tracker.
Depending on the deal you choose, your mortgage payments may stay the same throughout the term, or they may vary when the Bank of England’s base rate or market conditions change.
Fixed-rate mortgage
As the name says, the interest on a fixed mortgage is fixed. Whatever happens to the Bank of England’s base rate, the mortgage rate you’re paying won’t change, which means your payments won’t either.
Good for: people who want the security of knowing exactly what their mortgage will cost every month, whatever happens to the base rate.
More About: Fixed rate mortgages
Tracker mortgage
Tracker mortgages ‘track’ the base rate (in most cases, the interest rate they charge will remain a fixed amount above it). When the base rate goes up or down, so will your mortgage rate – and your monthly mortgage payments. Some tracker mortgages won’t go below a pre-defined minimum mortgage rate known as a ‘collar’ or ‘floor’.
Good for: people who believe the base rate is about to go down – and who know they could afford the extra expense if it went up.
More about: Tracker rate mortgages
Standard Variable Rate mortgage
Like tracker mortgages, variable rate mortgages follow the Bank of England’s base rate, but not so directly – whenever the base rate changes, lenders are free to choose whether or not to follow suit. (They will, however, want to keep their deals competitive.)
Good for: people who don’t want to commit themselves to a mortgage that lasts for a fixed time period – with most fixed-rate mortgages, the borrower will have to pay an Early Repayment Charge (ERC) if they switch to a new mortgage before a certain time.
More about: Variable rate mortgages