Tagged: Affordability & Risk

With a fixed-rate mortgage, the interest rate stays the same for the length of the deal. You will often hear these described as a two-year, five-year or ten-year fix. Your monthly repayments stay the same during that period, whatever happens in the wider market.

When the deal ends, the mortgage normally moves onto the lender’s standard variable rate unless you choose a new deal or remortgage. That standard rate is often higher, so monthly payments can rise.

Pros and cons:

• Pros: Predictable payments, protection from rate rises and easier budgeting.
• Cons: Potentially higher initial rates, less flexibility and possible early repayment charges.

A variable-rate mortgage is one where the interest you pay can go up or down over time.

Common examples include:

• Tracker mortgages: usually move in line with the Bank of England base rate plus a set margin.
• Discounted-rate mortgages: give you a discount off the lender’s standard variable rate for a set period.

Pros and cons:

• Pros: Lower initial rates are possible, flexibility can be better and you may benefit if rates fall.
• Cons: Payments can rise unexpectedly, which makes budgeting harder.

The standard variable rate is the lender’s default mortgage rate. It can change at any time and is often more expensive than a fixed or discounted deal.

• Pros: You can often leave without early repayment charges and may be able to overpay freely.
• Cons: The rate can rise at any time and is usually higher than more competitive deals.

This gives you a discount off the lender’s standard variable rate for a set period, often two or three years.

Pros and cons:

• Pros: Lower starting payments and potential savings if the lender’s SVR falls.
• Cons: Harder to budget because the lender can change the underlying rate, and early repayment charges may apply.

An offset mortgage links your mortgage to a savings account. Instead of earning interest on savings, the savings balance reduces the amount of mortgage interest you pay.

Example: if your mortgage is £200,000 and you hold £10,000 in linked savings, you may only pay interest on £190,000.

• Pros: You may repay the mortgage faster and still keep access to your savings.
• Cons: You do not usually earn savings interest, and these deals can be less competitive than standard products.

A cashback mortgage gives you money back when the mortgage completes, either as a fixed amount or as a percentage of what you borrow.

The cashback can help with moving costs, furniture or repairs, but the rate can sometimes be higher than on other mortgage products, so the overall cost still needs checking carefully.