Mortgages in the UK

Variable mortgage rates

A variable interest rate changes periodically, tracking the financial markets, interest rates, or some other financial benchmark. This mechanism is like the interest rate set against a credit card. Floating mortgage rates or tracker rates as they are sometimes known usually have a term association as well as a loan to value association. Those factors together can determine how favourable (low) the rate starts. Once the term runs out, the variable rate usually jumps to a substantially higher rate. Sometimes fixed, sometimes variable again. It just before this that it is a good time to switch mortgages by remortgaging.

Fixed mortgage rates

Fixed rate mortgages maintain a fixed interest rate for the term of the contract. For instance if you sign up to a 2 year fixed rate of 3%, then for that 2 years your rate will not change. The rate on offer is linked to the length of the term and the loan to value amount. That being the ratio between the value of your home, and the amount of money you are borrowing. The lower the ratio and the longer the term, the higher the interest rate as there is a greater risk to the lender. Fixed rate mortgages are great in times where a country's financial future is unsure and rates of interest are generally volatile.