Interest Rates

Different types of interest, or methods of calculating interest, can apply to different mortgage products. Some of the variations are: -

Variable Rate

The interest rate you pay goes up or down according to how your lender reacts to interest rate moves on the money markets.

Standard Variable Rate

The normal rate of interest offered on a mortgage by the lender is called the Standard Variable Rate. mortgage schemes, such as discounted mortgages, are often linked to this rate.

Fixed Rate

The interest rate you pay stays the same for a set period, even if general interest rates go up or down. You can plan your budget with confidence.

Discounted Rate

There is a guaranteed reduction in the Standard Variable Rate giving you the benefit of lower monthly payments for a period of time.

Capped Rate

The interest you pay is "capped" at a top level. You pay no more than the capped rate. You can also still benefit if the Standard Variable Rate goes down.

Tracker Rate

An interest rate directly linked to another rate usually the Bank of England Base Rate.

Annual Interest

Most mortgages have traditionally charged interest annually in advance which means if you make a substantial capital repayment to reduce your mortgage you need to time the date of your payment, or make a special arrangement with your lender, to make sure you are not giving your lender an interest free loan until the next interest calculation date! When you pay off your entire mortgage however interest is almost always then recalculated daily until your payment date although some products recalculate monthly. Some products now calculate all interest charges daily.

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