The different types of mortgage interest rates

What are the different types of mortgage interest rates available?

Loans come in many forms and with many provisos relating to interest rates, repayment and, of course, their value. Mortgages are one of the most popular types of loan on the market, providing people who don’t have the means to buy a home outright to get onto the property ladder. One of the main issues with mortgages is the rate of payable interest.

The value for money provided by any mortgage can be gauged almost entirely by the interest rate on offer, but for homeowners seeking the right one, there are a few different types to choose from which offer good (or poor) value for different reasons. Here is a breakdown of the different mortgage types available today that, along with these valuable mortgage guides you may find useful:

Variable rate

Typically, the rates for these change year after year, depending largely on how the base rate from the Bank of England changes. In some respects, variable rate mortgages can be good value, especially in this climate, but a sudden rise in the rate can cause a bit of a shock.

Tracker

Falling somewhere in the middle, tracker mortgages can offer decent value, and they often go up or down alongside the Bank of England’s base interest rate. Usually, they’re pretty cheap, but should interest rates begin to climb up, they suddenly become much less appealing.

Capped rate

This type of mortgage is of interest largely because the rate of interest charged by lenders every year doesn’t go above a certain level. The major drawback of capped rate mortgages is that they’re linked to the standard variable rate available.

Fixed rate

For anyone who doesn’t want to pay more than expected, the best option for them could be to take out a fixed rate mortgage. Historically, they were seen as expensive, but low base interest rates have made them more appealing to house-hunters, as editor of Moneyfacts.co.uk Sylivia Waycot said:

“Five-year fixed-rate mortgages have traditionally been a bit too expensive to be the first choice for most of us. However, thanks to lenders enjoying cheap loans from the government this is changing.”

One building society has recently offered a 10-year fixed rate mortgage to customers with a rate of just less than 4% per annum. This is seen as unprecedented from any lender, but it seems like long-term fixed rates are something that could be here to stay.

A spokesperson from Yorkshire Building Society commented:

“Borrowers have been showing an interest in longer term fixed rate mortgages, which is why the time was right for us to launched the 10-year fixed-rate mortgage which offers ’borrowers long-term peace of mind.

“With so much uncertainty about the economy at home and abroad, borrowers tend to choose a fixed rate mortgage to make it easier to budget month to month. Our valuable mortgage guides help first time buyers, people moving home or people wanting to change mortgage provider.

“Fixing for the longer term is tempting when our current mortgage range is so competitive on the products that suit your individual needs, and there is an expectation that the Bank of England Base Rate could start to rise”, they said.

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