Once you have chosen whether you want a repayment mortgage or an interest only mortgage, you will then need to think about the interest rate options available...

Fixed Rate Mortgage
This is where you pay a guaranteed rate of interest for a fixed period, and therefore be unaffected by interest rate changes.

If you think that interest rates will go up, a fixed rate will protect you from rises in your mortgage payments.

But if rates come down and if variable mortgage rates fall below your fixed rate, you will still have to pay the fixed rate.

Capped Rate Mortgage
A capped rate mortgage is very similar to a fixed rate mortgage except that if the variable rate drops below the capped rate, the borrower will make payments based on the lower variable rate.

However, should rates increase the payments will be capped and will not rise above the capped rate.

Standard Variable Rate
The variable rate is where the lender sets up the rate of interest you pay and changes the rate up and down as often as it thinks necessary to suit market conditions.

The downside of this is that your monthly repayments vary and you cannot be certain of how much you’ll be paying in the future.

Tracker Rate Mortgage
This is a variable rate that is linked to the movement of The Bank of England Base Rate.

Your rate will be a set percentage amount above the relevant base rate for a specified period of time.

As their name suggests the rates of tracker mortgages change to ‘track’ changes in the base rate to which they are linked.

So if the base rate increases by 1%, the pay rate will increase accordingly. Also if the base rate is reduced, borrowers will benefit from a lower pay rate.

Discounted Rate Mortgage
This is where you pay the lender’s variable rate minus an agreed discount for a fixed period such as one or two years.

This can be useful if you are on a tight budget because your initial payments are lower.

However, your payments will still go up and down as often as the lender changes its rates.