Residential Mortgages

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 usually can 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 ends, the loan will usually revert to the Lenders SVR.

Fixed-Rate

A fixed-rate mortgage allows you to repay interest at a fixed 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 any movement in an index specified by the lender; for example, could be the Bank of England Base Rate for a set period so that you will benefit from any falls in 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 lenders SVR for a set period. 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 mortgage types. It would help if you asked your adviser to explain these in more detail or ask for an illustration.

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