There are generally three types of mortgage available; standard variable rate, discounted / tracker rate, and fixed rate mortgages.

Fixed Rate

A fixed interest rate is the most common type of mortgage. This interest rate will remain fixed for a period of time agreed at the outset. A fixed interest rate protects you from any movements in the underlying benchmark rate (both positive and negative). This mortgage brings the benefit of predictable mortgage payments for a certain period of time. However, it does not generally allow you to repay the mortgage in full or make substantial overpayments without a financial penalty. Often, a fixed rate will come with an allowance to overpay 10% per year without penalty.

Standard Variable Rate (SVR)

A standard variable rate means your mortgage payments can increase or decrease depending on shifts in interest rates. Generally, this allows more flexibility than a fixed rate mortgage as you can make substantial overpayments or redeem the mortgage in full without penalty.

Discounted or Tracker Rate

A discounted or tracker rate loan means it has an interest rate set at a certain amount below or above a benchmark rate. Commonly, the benchmark could be the lender’s standard variable rate or the Bank of England base rate. Your mortgage payments will increase or decrease as the benchmark moves. Again, these mortgages can offer the flexibility to make overpayments, but can offer lower payments than a standard variable rate.

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