Fixed Rates

When you choose a fixed-rate deal, the interest rate you pay is fixed for a set period - for example 5.69 per cent for three years. The lowest fixed rates are available over shorter periods, but there are some longer-term fixes available at attractive rates.

One of the main reasons a fixed-rate deal can be attractive is that you know exactly how much your mortgage will cost for a given period. If you know money is going to be stretched in the first few years you own your home, the security of knowing how much your repayments will be each month can give you valuable peace of mind.

That's the advantage of choosing a fixed-rate deal, but what about the downside?

Well, the disadvantage of a fixed-rate loan is that the lender's standard variable rate (SVR) could be below your rate, meaning you are paying more than other borrowers. If you think interest rates are going to fall, you would be unwise to commit to a fixed-rate mortgage.

A mortgage advisor has access to a wide range of available mortgages in the UK and can quickly sift through thousands for products to find the best fixed rate mortgage deal for you.

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Discounted Rates

A discount mortgage offers a reduction in a lender's standard variable rate (SVR) of a set percentage over a given period. For example, a 2 per cent discount on an SVR of 5.95 per cent means you pay 3.95 per cent. Lenders are increasingly offering stepped discounts where the margin between the pay rate and the SVR decreases after a set period.

Whatever kind of discount you take, if the SVR changes, so does the rate you pay.

Choosing a discounted rate means taking a gamble - what you actually pay can move upwards as well as downwards. Although you still pay less when rates are rising, you have no control over how high they will go.

Tracker Rates

Tracker mortgages are basically variable-rate deals, but instead of the interest rate you pay being based on your chosen lender's standard variable rate (SVR), it is linked to an outside force. This is usually the Bank of England base rate, but it can be the London Interbank Offered Rate (LIBOR).

The interest rate you pay is a set margin above, or below, the rate that is being tracked and it changes as the rate moves. So if you have a base rate tracker, your repayments will change whenever the Bank of England changes its interest rate.

On the plus side, you don't have to rely on your lender dropping its mortgage rate in line with any cuts in the base rate set by the Bank of England.

On the downside, the rate you pay will automatically rise if the base rate rises, regardless of your lender's reaction to the rise.

Capped Rates

As its name suggests, this type of mortgage offers a roof on the level to which the interest rate on your mortgage can rise. But because the rate is capped rather than fixed, it can slide up and down below the cap and your repayments can change.

For example, if you choose a capped rate of 6.00 per cent over two years, you have the assurance that if the lender's standard variable rate (SVR) rises to 7.00 per cent during that time, the rate you pay will remain at 6.00 per cent. Should the lender's SVR fall to 5.00 per cent, the rate of interest you pay will fall with it.

This provides you with all the assurance of a fixed-rate mortgage and all the benefits of a variable-rate one. You will always know what your maximum outgoings will be - the cap sets the limit - and if interest rates fall, you could pay less. For this reason, capped rates are often higher than fixed rates.

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