There are several terms used to describe the interest rates you pay on a
mortgage, and the key terms are as follows:
Standard Variable Rate (SVR) – The SVR is the lender’s standard rate. With a variable rate mortgage you are normally able to switch lenders at any time without being penalised. If you take out a mortgage that has a fixed, tracker or discounted rate, once the set period of time ends the loan will usually revert to the lender’s SVR.
Fixed Rate – A fixed rate mortgage allows you to repay interest at a
set rate, irrespective of any interest rate fluctuations. In other words, your
monthly repayments will remain the same every month for a time period agreed
between you and your lender.
Tracker – A tracker mortgage usually tracks for a set period any
movement in an index specified by the lender; this for example could be the
Bank of England Base Rate. You will benefit from any falls in the specified
interest rates, but will also have to pay more each month should the rate
increase.
Discount – The discount mortgage rate is another variation of the
standard variable rate. It provides a discount from the lender’s SVR for a set
period of time. The variable interest rate still fluctuates, meaning your
monthly repayments may differ slightly from month to month, but the discount
remains constant.
Fixed, Tracker and Discount rate mortgages often have early repayment charges
so you need to be sure this is suitable for you for the foreseeable future.
Furthermore, the lender may also charge a ‘booking/arrangement fee’ to apply
for these types of mortgage. You should ask your adviser to explain these in
more detail, or ask for an illustration.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments