On this page we consider some of the mortgage product types available in the market, explain how they work, and how they could benefit you. In particular we are going to review Fixed Rate Mortgages, Tracker Rate Mortgages, and Standard Variable Rates.

What is a mortgage rate

When you take a mortgage you are arranging a loan secured against your property. The lender will look to make a profit on that loan and their main means of doing this is by charging you interest.

Interest can be charged daily, monthly or annually, depending on the mortgage product, but the most important feature for borrowers is the rate of interest charged.

Fixed Mortgage Rates

In a fixed rate mortgage product the rate of interest is fixed for a specified period of time. This is typically two, three or five years.

The longer you want your rate fixed, the higher the interest rate you will be expected to pay.

Fixed rates are ideal for borrowers who are on a tight budget and who cannot afford an increase in pay rate on their mortgage. As a result, fixed rates are particularly attractive to first time buyers. Most mainstream lenders will always have fixed rates in their product portfolio.

The risk with a fixed rate is that you may be fixing your interest at a level well above where the market settles during the course of your loan. An example of this would be where borrowers took Fixed Rates in early two thousand and eight only to see base rates drop to their lowest ever level a few months later. Some of those borrowers may feel they have been disadvantaged.

Tracker Mortgage Rates

Tracker rate products are arrangements where the interest rate charged tracks an underlying rate such as the Bank of England base rate, the lenders base rate, or less commonly, the London Interbank or ‘Lie’ ‘bor’ rate.

For example, a tracker rate may be set at two per cent above the Bank of England base rate. Therefore if the Bank of England base rate is at one per cent, the interest rate charged will be two per cent above this at three per cent total.

If the Bank of England base rate increases by a quarter of one per cent, the interest you pay increases by a quarter of one per cent. Similarly if the Bank of England base rate drops, the interest rate you are charged will drop in line with the base rate.

Tracker Rates can be advantageous, offering low initial pay rates.

The risk is that if base rates rise, your pay rate will rise with them, and as a result your mortgage could become more expensive than planned.

Capped Mortgage Rates

You may occasionally see products on the market which have a capped element. Although these products track base rates, they are guaranteed not to go above a pay rate cap.

Switch to fix Mortgage Rates

A product which has become available in recent years is the switch to fix product where the lender offers a tracker rate with the option to switch to a fixed rate at any time without penalty.

This can give you the advantage of a competitive pay rate today with the protection of being able to fix your rate later.

Standard Variable Mortgage Rates

When the term of your Fixed or Tracker Rate ends you will then revert to the lender’s standard variable rate. This is the rate that the majority of borrowers find themselves on.

Although lenders will always offer new, competitive rates for borrowers to move onto, apathy in the market means that the vast majority will tend to stay on their lenders standard variable rate.

This can be expensive because the standard variable rate is rarely as competitive as other rates offered. We would always recommend that a borrower on a standard variable rate checks out their alternative options across the whole of the market to ensure that they are on the best possible mortgage rate.

Mortgage Rates Summary

In summary, fixed rates offer security and a guaranteed monthly payment, and tracker rates tend to be the most competitive and may offer savings. The best mortgage rate for you is a matter best discussed with your independent mortgage broker.

Whichever mortgage rate appeals, our team are waiting to assist you – contact us now.