Mortgage Types

Repayment methods

There are the two main ways you can pay off your mortgage. These are called ‘repayment’ or ‘interest only’.

You pay a fixed rate of interest for a set period, so you know exactly what you’ll be paying each month during that time. When the fixed period ends, you’ll usually move to the lender’s standard variable rate. There are usually penalties if you pull out early.

Tracker Rate

Tracker rates are linked to the Bank of England rate. This means they’ll always go up or down in line with changes to the base rate.

Standard variable rate

With a variable rate mortgage your payments go up or down with the lender’s standard interest rate. This often changes following Bank of England base rate changes.

Discounted rate

Discounted Rates are discounted from the lenders Variable rate for a set period of time and will move up and down in line with any changes to the lenders Variable rate.

Capped or cap and collar

With a capped rate you pay a variable interest rate, but there’s a ceiling so your payments won’t go above a certain amount for a set period. Some deals include a collar too – this is the lowest rate you’ll get. If interest rates fall below the collar, you’ll lose out.

LIBOR Rate

LIBOR (London Inter Bank Offer Rate) deals are not widely available but some lenders do offer them. They track the LIBOR rate for a set period of time and will move up or down with it. 

Stepped Rate

Stepped rate deals are available on all of the other types and usually start low in the first year and will increase each year until the end of the deal, usually there are penalties to exit these deals early