Interest Rates
smartlife mortgages will discuss the relevant products with you, so make a note of any questions you may have.
- Flexible mortgages
A flexible mortgage allows you to under pay or over pay the agreed monthly mortgage payments. This will either shorten the term of the mortgage or, in the case of under payments, increase the total interest paid throughout the mortgage term. For individual scheme variations please ask for further information from your adviser.
- Standard variable rate
Most lenders have a standard variable rate. This is the rate before any 'special offers' or discounts are applied. It is set by the lender and will fluctuate roughly in line with the Bank of England base rate. It is up to the lender to decide if they wish to change the rate when the bank base rate changes, and if so by how much.
- Fixed rate
Here the rate is guaranteed to stay fixed for a specific period, after which it can be expected to revert to the lender's normal standard variable rate, or you may have the option to transfer to a new fixed rate. It has the advantage of providing stability, but has the disadvantage that if the standard variable rate falls you may be paying a higher rate of interest.
- Tracker rate
This kind of mortgage has an interest rate which based on the Bank of England’s base rate. This means that your monthly repayments go up when the base rate goes up, and go down when the base rate goes down.
- Discount
This is a discount to the lenders standard variable base rate, lasting for a guaranteed period of time. Your monthly payment will fluctuate with any changes in the standard variable rate, and will revert to the standard variable rate at the end of the period.
- Capped
This is a form of variable rate where the rate is capped at a specified level over a specified period of time, i.e. it is guaranteed not to exceed the capped rate during the period. The rate may fall during the period, and at the end of the period will revert to the lenders standard variable rate at the time.
- LIBOR
London InterBank Offered Rate is the rate at which banks notionally buy and sell money to each other. It varies from day to day and is closely linked to the base rate.
The relationship of LIBOR to the base rate can give you an indication of these possible future direction of base rates. If LIBOR is significantly above the base rate it indicates that the money market believes interest rates are about to increase. If it is significantly below, the reverse is true. The key LIBOR rate is three month LIBOR. However, rates are also quoted for one, six and 12 month periods.
