Types of interest rates

Fixed
With a fixed-rate mortgage, you pay a set rate of interest for a set period, usually one to five years. During this time, you'll make the same monthly payments, whether interest rates go up or down.

Key pros and cons of fixed rate mortgages

Pros

• Budgeting is easy. You know exactly how much you'll be paying and for how long.
• If interest rates rise, your borrowing costs don't rise during the fixed-rate period.

Cons

• If interest rates fall, you won't get the benefit of this.
• You will usually have to pay a penalty if you want to switch to another mortgage rate before the end of the fixed term, and sometimes for a time after.
• When the fixed rate ends, your borrowing costs could rise sharply as you will then normally pay the standard variable rate.

Tracker
With a tracker rate, the amount you pay moves automatically with the rises and falls in bank base rates. You usually pay a set percentage - for example 0.5 per cent - above the base rate for either a limited period (a few years) or the full term of the mortgage.

Key pros and cons of tracker rate mortgages

Pros