There are many different types of interest rates available, regardless of whether you have a repayment or interest only mortgage.
The type of interest rate that you choose will effect how your monthly mortgage payments can change. Mortgage interest rates tend to move in line with the Bank of England base rate, which is reviewed monthly.
Two important decisions that you need to make are do you have a fixed rate or variable rate deal, and do you have it over a short or longer period?
To help you decide:
1.Do you want to know exactly how much your mortgage payments will be for a given period of time?
Consider a fixed rate deal.
2.If you do not think that you could cope with increased mortgage payments if interest rates rise.
Consider a fixed rate deal.
3.If you need a payment which is as cheap as possible now, but will get more expensive later when you can afford it.
Consider a discounted rate.
4.If you want to be able to repay all or part of your mortgage without paying an early repayment charge.
Consider a mortgage that allows you to pay early, or make over-payments, usually a variable rate deal.
Bear in mind also, that variable rates rise, so you have the risk that you may not be able to meet your mortgage payments; but other deals, such as fixed rates, mean that you may lose out if interest rates fall.
How do they all work and what do they mean?
1.Standard variable rate.
Your payments go up or down when the lenders mortgage rate changes.
2.Tracker rate.
A variable rate loan, where the interest rate is a set amount above or below the Bank of England or another base rate and so always tracks changes in that rate.
3.Fixed rate.
Your payments are set at a certain level for a set period of time; this could be two, five, ten years, or even longer. You would then be charged the standard variable rate at the end of that period.
4.Discounted rate.
Your payments are variable, but they are set less than the lenders standard variable rate for a set period of time. You would then be charged the standard variable rate at the end of that period.
5.Capped rate.
Your payments are variable, but do not go over a set level during the period of the deal. You would then be charged the standard variable rate at the end of that period.