Types of interest rates
There are many different ways of calculating the interest. Click on each of the interest types to find out more.
Standard variable
This is the rate most borrowers pay. This goes up and down, depending on the Bank of England's base rate.
Fixed
This rate is fixed for a set period. During this time, your payments always stay the same, no matter if rates go up or down.
Tracker
With this rate, the amount you pay moves with the base rates. You usually pay a set per cent above the base rate for a set time or the full mortgage term.
Discount
These offer a reduction on a given interest rate, like 0.5per cent off the standard variable rate for a set period.
Capped
These rates won't rise above a certain level for a set period of time.
Standard variable
This is the rate most borrowers pay. If you have a discount, fixed rate or other low rate mortgage, which runs for a set time, you will normally be transferred to a standard variable rate when the introductory rate ends. This rate goes up and down, depending on the Bank of England's base rate.
Key pros and cons of standard variable rate mortgages
Pros
- They are simple to understand.
- The rate is variable - so you benefit from interest rate falls.
- There are often no penalties if you switch from these types of mortgage rate.
Cons
- You may get cheaper rates than the standard variable rate.
- Because it's difficult to tell if interest rates will go up or down, it's hard to plan ahead.
- The rate is variable-so if interest rates rise, your payments normally increase too.
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