Mortgage Interest Rates Options

Standard variable rate

Your payments move up or down with the lender's own mortgage rate, which is usually driven by the European Central Bank (ECB) base rate.

• Usually you can leave your lender without any penalties or problems.
• You're in control. You can usually pay back extra amounts (and cut your interest costs) without a penalty.
• It moves with interest rates. So if interest rates go up, so will your monthly payment.
• It will almost certainly be expensive compared to other deals.
• The lender may not reduce, or may delay reducing, their variable rate even if the ECB rate goes down.

Tracker rate

A variable rate loan with an interest rate that's at a set amount above or below the ECB or some other base rate, set independently from the lender. It tracks (moves up or down with) that rate.

• It can pay to go for a tracker if you can afford to pay more when interest rates go up, in exchange for benefiting when they go down.
• It's not a good choice if your budget won't stretch to higher monthly payments.

Discounted interest rate

Your monthly payments can go up or down, but you get a discount on the lender's standard variable rate for a set period of time. At the end of the deal, you usually change over to the standard variable rate.

• It gives you a gentler start to your mortgage, at a time when money may well be tight. But you must be confident you can afford the payments when the discount ends.
• The discount period is limited, so don't get used to those early low repayments.
• You may not be able to make overpayments and pay off the loan early without penalties.
• The lender may not reduce, or may delay reducing their variable rate

Fixed interest rate

Your payments are set at a certain level for an agreed period. At the end of that period, they'll usually switch you to the standard variable rate.

• Your payments will stay the same in that period, even if interest rates go up.
• This gives you the security of knowing that you can afford your payments and will make it easier for you to budget.
• If rates go down, you won't benefit. Your payments will stay at the higher rate.
• You may not be able to make overpayments and pay off the loan early without penalties.

Capped rate

Your payments are variable and often linked to a base rate, but fixed not to go above a set level (the 'ceiling' or 'cap') during the period of the deal. At the end of the period, you are usually charged the lender's standard variable rate.

• You know the maximum you will pay for a set period of time.
• Useful if you want the security of knowing that your payments can't rise above the set level, but still benefit if rates fall.

Collared rate

May be used in conjunction with a capped rate or a tracker (or both). Your payments are variable but will not fall below a set level (the 'collar').

It may be part of another interest-rate deal which otherwise appears attractive. But note that if the rate payable is only just above the 'collar' and you think rates will fall, you may not get the full benefit of a reduced payment.

Variable rates offer most flexibility. They allow you to increase your repayments, use a lump sum to pay down all or part of your mortgage or re-mortgage without having to pay any fees or penalties.

However, because they rise and fall in line with ECB rates, you have to bear in mind that your mortgage repayments can go up or down during the life of your loan.

Split rates

This is where a portion of your mortgage is on a fixed rate and the other portion is on a variable rate. If rates move up or down, your repayments on the fixed part won’t change.You will benefit from any fall in rates on the variable part but your repayments will also increase if rates rise. A split rate could be a good option for you if you are unsure about the direction or scale of interest rate movements but need some security.