Types of interest rate deals

In this article, we present a detailed description of the type of interest rate deals that you can explore for you mortgage and loans. Some content presented in this table is taken from the official sites of FSA, hence the information is correct as on the date of publication of this article on mortgage and loans. Please consult your financial advisers in case of doubts.

Type of interest rate deals	How does it work	Charges if you repay early	What in it for you?
Standard variable rate	Your payments move up or down with the lender's own mortgage rate, which is usually driven by the Bank of England's base rate.	Not usually, but check and see.	-- Usually you can leave your lender without any penalties or problems. -- You're in control. You can usually pay back extra amounts (and cut your interest costs) without a penalty. -- It moves with interest rates. So if interest rates go up, so will your monthly payment. -- It will almost certainly be expensive compared to other deals. -- The lender may not reduce, or may delay reducing, their variable rate even if the Bank of England rate goes down.
Tracker rate	A variable rate loan with an interest rate that's at a set amount above or below the Bank of England or some other base rate, set independently from the lender. It tracks (moves up or down with) that rate.	Sometimes during any special deal period and maybe even after the period too.	-- It can pay to go for a tracker if you can afford to pay more when interest rates go up, in exchange for benefiting when they go down. -- It's not a good choice if your budget won't stretch to higher monthly payments.
Discounted interest rate	Your monthly payments can go up or down, but you get a discount on the lender's standard variable rate for a set period of time. At the end of the deal, you usually change over to the standard variable rate.	During the special deal: yes, almost always. They can apply even after the end of the special deal period as well.	-- It gives you a gentler start to your mortgage, at a time when money may well be tight. But you must be confident you can afford the payments when the discount ends. -- The discount period is limited, so don't get used to those early low repayments. -- You may not be able to make overpayments and pay off the loan early without penalties -- The lender may not reduce, or may delay reducing their variable rate even if the Bank of England rate goes down.
Fixed interest rate	Your payments are set at a certain level for an agreed period. At the end of that period, they'll usually switch you to the standard variable rate.	During the special deal period: yes, almost always. They can apply even after the special deal period, too.	-- Your payments will stay the same in that period, even if interest rates go up. -- This gives you the security of knowing that you can afford your payments and will make it easier for you to budget. -- If rates go down, you won't benefit. Your payments will stay at the higher rate. -- You may not be able to make overpayments and pay off the loan early without penalties.
Capped rate	Your payments are variable and often linked to a base rate, but fixed not to go above a set level (the 'ceiling' or 'cap') during the period of the deal. At the end of the period, you are usually charged the lender's standard variable rate.	During the special deal: yes, almost always. They can apply even after the end of the special deal period as well.	-- You know the maximum you will pay for a set period of time. -- Useful if you want the security of knowing that your payments can't rise above the set level, but still benefit if rates fall.
Collared rate	May be used in conjunction with a capped rate or a tracker (or both). Your payments are variable but will not fall below a set level (the 'collar').	Not usually, unless it is used in conjunction with a capped rate or a special-deal tracker rate (or both). But check and see.	-- It may be part of another interest-rate deal which otherwise appears attractive. But note that if the rate payable is only just above the 'collar' and you think rates will fall, you may not get the full benefit of a reduced payment.

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