Mortgage Rates & Options
Fixed rates give you the security of knowing that your monthly payments are the same. With this type of mortgage, you pay a fixed rate of interest for a set period typically over 2, 3 or 5 years, so you know exactly what you'll be paying each month even if interest rates change.
- Offers you the security of knowing exactly how much you will be repaying during the fixed rate period
- Makes budgeting easier
- Security of knowing that if interest rates do rise, your monthly repayments won't rise
- Early repayment charges are likely to apply
- You are likely to pay a booking fee or arrangement fee
Your payments change when interest rates fall or rise. Tracker variable rates are usually linked to The Bank of England Bank Rate, which means they'll change in line with changes to the Bank Rate. Tracker variable rates usually offer an initial incentive, typically two or three years. For example, the interest rate payable may be set a small percentage above the rate being tracked for an incentive period. At the end of the incentive period the rate will continue to track the rate to which it is linked but usually at a larger percentage above the rate being tracked.
- Gives you the certainty of knowing the interest rates you pay will move in line with the rate being tracked.
- They generally offer an initial incentive rate which is lower than a fixed rate mortgage over the same period.
- Some trackers offer the option of switching to a fixed rate deal with the same lender without having to pay the early repayment charges, which would otherwise apply to the tracker rate mortgage.
- If the rate being tracked increases, your interest rate and monthly payments will also increase, which can make budgeting more difficult.
- Some tracker variable rates come with a collar - this means the rate you pay never falls below a set level e.g. a rate tracking the Bank of England bank rate + 1% with a collar at 1.5% means that even if the Bank rate falls to below 0.5%, you will never pay less than 1.5%
- Early repayment charges are likely to apply for at least the term of the initial incentive tracker period.
- There is generally an arrangement or booking fee payable.
- After the initial period ends, your rate will normally remain linked to the rate being tracked but at a higher percentage above it - so there may be a large increase in your monthly payments.