Interest Rate Options - Optimum Finance Group Limited

Not every lender will offer every different type of interest rate. Below is a guide of the most common types of rate in the marketplace, and some of the pros and cons associated with each type.

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 go up or down, roughly in line with the Bank of England base rate. It is up to the lender to decide if and when to change their rate when the bank base rate changes, and if so, by how much.

Discount Rate

This is a discount from the lender’s standard variable rate, and lasts for a guaranteed period of time. Your monthly payment will go up and down with any changes in the standard variable rate, and will revert to the standard variable rate at the end of the discounted period. Common discounted periods are generally 2 years, but can also be offered for 3 or 5 years.

Base Rate Tracker

Similar to a standard variable rate, but the interest rate is guaranteed to be a set amount above the Bank of England base rate, and alters in line with the base rate. Therefore, your monthly payment will go up or down as and when the Bank of England base rate goes up or down. Common tracker periods are generally 2 years, but can also be offered for 3 or 5 years.

Fixed Rate

Here, the rate is guaranteed to stay the same for a guaranteed amount of time. It has the advantage of providing stability, as your monthly mortgage payments will remain the same for the length of the fixed rate. At the end of the fixed rate, your interest rate will revert to the lender’s standard variable rate. Common fixed rate periods are 2, 3, 5 & 10 years.

Capped Rate

Your interest rate goes up or down as the standard variable rate changes, but is guaranteed not to go above a set level (the ‘cap’) during the period of the deal.

Cashback

Some lenders offer a cash payment on completion of the loan, either based on a percentage of the total loan or a flat amount. In some cases, if the loan is redeemed early, a proportion of the cashback may have to be repaid to the lender.