Mortgage rates UK - fixed, variable, discounted and more

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There are a number of different mortgage rates to choose between in the UK, and each one had its good points and its bad points.

To help you decide which is most suitable, here is a quick summary of the more common varieties: fixed, variable, discounted, capped and tracker.

Fixed

Fixed-rate deals guarantee charges for a set time, usually between one to five years.
Pros : borrowers are able to budget, as they know exactly what their mortgage repayments will be as long as the fixed rate is in place, and do not pay more if standard rates increase.
Cons : you will not be able to take advantage of lower interest charges if cuts are made.

Variable

Here, the interest rate on your mortgage, and therefore the amount you repay each month, will rise and fall depending on market fluctuations. Most lenders change their rates in line with the Bank of England Base Rate.
Pros : borrowers benefit from lower repayments when rates are cut.
Cons : difficult to predict what future repayments will be, and rates can increase as well as decrease so make sure you can afford to pay more if need be.

Discounted

This is where rates are discounted for a set term, after which time they return to the standard level. These deals are often offered to first-time buyers to encourage them to get onto the property ladder.
Pros : helps keep costs down in the first few years.
Cons : the cost of your mortgage is certain to increase at the end of the agreed term, and it is therefore important that you plan for this extra monthly expense.

Capped

A capped-rate is like a variable-rate except that the rate of interest cannot rise above a certain level. When the capped rate deal ends, charges return to the standard variable rate.
Pros : allows borrowers to benefit from periods of lower interest, but with the reassurance that charges cannot rise above a certain amount.
Cons : some capped mortgages also set a 'collar' or 'floor' rate, which means interest cannot fall below a certain level.

Tracker

A tracker also works in a similar way to the variable rate mortgage, however the difference between the Bank of England's base rate and customers' mortgage rates is guaranteed.
Pros : you will benefit immediately from any Bank of England cuts.
Cons : rates also rise in accordance with market changes, often making a tracker more expensive than a variable rate mortgage.

© The Pink Fridge Online Magazine 2008 - Mortgage Rates