base rate set by the Bank of England. So if interest rates are high, your mortgage repayments will increase. Conversely, if they are low, your repayments will be lower. Normally there aren’t any charges for repaying lump sums without penalty.

Tracker: tracker rates are another type of

Basic principle of a mortgage is very simple: you borrow money to buy a house and pay back the loan with interest. However, nowadays there are so many products available that it can be mind-boggling. Here’s a guide to methods of repayment and interest rates.

Methods of repayment

Repayment mortgage: with repayment mortgages, also known as capital and interest loans, you repay a little of the capital with every repayment, along with interest, gradually paying more and more until the loan is paid off at the end of the term.

Interest-only mortgage: you don’t pay any of the capital in your monthly repayments with this type of mortgage. Instead, all your repayments are towards the interest only. You’ll need to set up a separate savings or investment fund, e.g. and endowment policy, for repaying the capital as a lump sum at the end of the mortgage term. If the fund doesn’t accumulate enough capital to repay the mortgage at the end of the term, you will need to pay the shortfall.

Interest rates

Standard variable rate: the rate of interest that you pay fluctuates depending on the lender’s current rate, which is normally linked to the base rate set by the Bank of England. So if interest rates are high, your mortgage repayments will increase. Conversely, if they are low, your repayments will be lower. Normally there aren’t any charges for repaying lump sums without penalty.

Tracker: tracker rates are another type of

epayment mortgage: with repayment mortgages, also known as capital and interest loans, you repay a little of the capital with every repayment, along with interest, gradually paying more and more until the loan is paid off at the end of the term.

Interest-only mortgage: you don’t pay any of the capital in your monthly repayments with this type of mortgage. Instead, all your repayments are towards the interest only. You’ll need to set up a separate savings or investment fund, e.g. and endowment policy, for repaying the capital as a lump sum at the end of the mortgage term. If the fund doesn’t accumulate enough capital to repay the mortgage at the end of the term, you will need to pay the shortfall.

Interest rates

Standard variable rate: the rate of interest that you pay fluctuates depending on the lender’s current rate, which is normally linked to the base rate set by the Bank of England. So if interest rates are high, your mortgage repayments will increase. Conversely, if they are low, your repayments will be lower. Normally there aren’t any charges for repaying lump sums without penalty.

Tracker: tracker rates are another type of

of the capital in your monthly repayments with this type of mortgage. Instead, all your repayments are towards the interest only. You’ll need to set up a separate savings or investment fund, e.g. and endowment policy, for repaying the capital as a lump sum at the end of the mortgage term. If the fund doesn’t accumulate enough capital to repay the mortgage at the end of the term, you will need to pay the shortfall.

Interest rates

Standard variable rate: the rate of interest that you pay fluctuates depending on the lender’s current rate, which is normally linked to the base rate set by the Bank of England. So if interest rates are high, your mortgage repayments will increase. Conversely, if they are low, your repayments will be lower. Normally there aren’t any charges for repaying lump sums without penalty.

Tracker: tracker rates are another type of

the fund doesn’t accumulate enough capital to repay the mortgage at the end of the term, you will need to pay the shortfall.

Interest rates

Standard variable rate: the rate of interest that you pay fluctuates depending on the lender’s current rate, which is normally linked to the base rate set by the Bank of England. So if interest rates are high, your mortgage repayments will increase. Conversely, if they are low, your repayments will be lower. Normally there aren’t any charges for repaying lump sums without penalty.

Tracker: tracker rates are another type of

base rate set by the Bank of England. So if interest rates are high, your mortgage repayments will increase. Conversely, if they are low, your repayments will be lower. Normally there aren’t any charges for repaying lump sums without penalty.

Tracker: tracker rates are another type of variable rate loan where the lender ‘tracks’ the rate at a set amount above or below the Bank of England base rate and it increases or decreases in line with base rate changes.

Fixed rates: the interest is set at one rate for a specified period of time, normally before changing to the lender’s standard variable rate. This can be good for helping you to budget in the first few years of your mortgage, or if you think interest rates are likely to fall during the fixed rate period, but you could end up paying over the odds if the base rate is low during this period. Some fixed rate products charge penalties for leaving so check exactly what the terms and conditions are before you sign up.

Capped rates: these are variable but specify a maximum level (‘cap’ or ‘ceiling’) that you’ll pay, so you will pay less if the base rate is lower than this. Normally the capped rate applies only for a fixed period, after which you’ll move to the lender’s standard variable rate. In this way you can benefit from reduced repayments if interest rates are low, with the security that they can’t go above a certain level. It can be useful for helping you to budget in th