Savills Private Finance (SPF) can help you to decide which type of mortgage product would be most suitable for you. The easiest way to do this would be for you to talk to one of our advisors, but hopefully the following information will help give you an idea of what you are looking for.

Variable Rate Mortgage

This is the simplest form of mortgage. The interest rate is set by the lender and will vary as rates in the market vary. Generally, if interest rates in the market rise, the lender will increase the rate on your mortgage, and therefore your monthly payments, usually within a few days. If rates fall, the lender will generally reduce your interest rate, thereby reducing your monthly payments. It often takes longer for reductions to be passed on to borrowers than increases.

Variable rates are usually consistent among lenders. However, you will find that there will be some price differential. Lenders with a mutual status (those that are owned by the members - such as building societies) and centralised lenders often offer a lower variable rate. Because variable rates are influenced by interest rates offered for savings, it is felt that the variable rate is unlikely to drop as low as the base rate.

MAIN ADVANTAGES
The least complex mortgage.
You will get the benefit of reductions in interest rates.

MAIN DISADVANTAGES
Often cheaper mortgages available.
No protection from increases in interest rates.
Reductions in interest rates tend to take longer to be put in place than increases.

Fixed Rate Mortgage

A fixed-rate mortgage guarantees the interest rate for a pre-agreed period and therefore your monthly payments for that time, enabling you to budget effectively by being certain of how much you have to pay each month. You will also be protected from any rises in interest rates during the period your mortgage is fixed. Once you fix the rate, your payments are guaranteed. The down side to a fixed rate mortgage arises if interest rates fall during your fixed period, your payments will stay the same and will not reduce. Also, there are usually redemption penalties to pay if you cancel your mortgage early. Depending on the product these might apply if you cancel the mortgage during the fixed rate period, but some products apply redemption penalties even if you cancel after the fixed rate period.

MAIN ADVANTAGES
Protected from increases in interest rates.

MAIN DISADVANTAGES
Most fixed rate products have redemption penalties.
No benefit from reductions in interest rates.

Capped Rate Mortgages

A capped rate means that you will pay the lender's standard variable rate but with the guarantee of a maximum upper limit for an agreed period of time. Like a fixed rate, you benefit from setting an upper limit for your monthly payments but here you have the added advantage of seeing your payments reduce if interest rates fall below the capped rate. Occasionally, capped rate mortgages have what is known as a collar - this term simply describes a lower limit to which the interest rate on your mortgage can fall. Capped rate mortgages are usually more expensive than fixed rate mortgages. Also, there are often redemption penalties to pay if you cancel your mortgage early. Depending on the product, these might apply if you cancel the mortgage during the capped period but some products apply redemption penalties even if you cancel after the capped period.

MAIN ADVANTAGES
Protects you from increases in interest rates.

MAIN DISADVANTAGES
Often more expensive than fixed rate mortgages.
Possible redemption penalties.
Some lenders can be slow in passing on reductions in interest rates.
Some capped mortgages have a lower limit below which the interest rate cannot fall (a collar).

Discounted Rate Mortgage

A discounted rate mortgage works in a similar way to a Variable Rate Mortgage but offers you a percentage discount from a lender's normal variable rate for a set period of time. The amount of the discount and the period will vary from deal to deal. If interest rates rise, your payments will also rise even though you will keep the same level of discount. If interest rates fall, your repayments will reduce accordingly. There are often redemption penalties associated with discounted mortgages, meaning you will have a penalty to pay if you cancel your mortgage early. Depending on the product, these might apply if you cancel the mortgage during the discounted period but some products apply redemption penalties even if you cancel after the discounted period.

MAIN ADVANTAGES
Can often be the cheapest products, especially in a market where interest rates are falling.
Wide variety of products available.
Enable you to benefit from reductions in interest rates.

MAIN DISADVANTAGES
No protection if interest rates rise.
Lenders are often slower in passing on reductions in interest rates than in passing on increases.
Many discounted products have redemption penalties.

Cash Back Mortgages

Some lenders offer you a cash payment when you take out a mortgage and this can be very useful at a time when you generally have lots of costs to cover. These cash back offers can be for quite significant amounts but are often to the detriment of a better overall product. The cash back mortgage will usually have restrictions and it is essential that you check the conditions of the loan. Nevertheless, they can be very important if you are at the very limit of what you can afford when buying a property and need some extra cash to help with the deposit, the costs of moving etc. Cash backs can apply to most other types of mortgage products such as variable rate, capped and fixed. You often have to repay all or part of the cash back if you cancel your mortgage early.

MAIN ADVANTAGES
Provide initially attractive cash incentive.

MAIN DISADVANTAGES
Generally more expensive in the long run.
Most cash back products have redemption penalties.

Tracker Mortgage

Tracker mortgages are a fairly recent addition to the market and were developed mainly as a result of the inability of lenders' to reduce variable rates below a certain level because of the interests of their investors. The interest rate with a tracker is usually set at a percentage rate above the Bank of England's base rate and although the resulting interest rate is usually lower than a lender's standard variable rate, this will vary from lender to lender. These mortgages could be attractive to people who think the UK will join the single European currency because of the opinion that this will lead to a period of relatively low interest rates. Standard variable rates are unlikely to fall to the same levels. Note that there are also other tracker products which are linked to other 'central' interest rates such as LIBOR.

MAIN ADVANTAGES
Potential to be cheaper than standard variable rates.
Reductions in interest rates take effect as quickly as increases.
Most tracker mortgages calculate interest on a daily basis rather than annually and can therefore be cheaper.

MAIN DISADVANTAGES
No protection from increases in interest rates.

Flexible Mortgage

Flexible mortgages are a relatively new type of mortgage although the majority of lenders now offer them. If a mortgage is 'flexible' it means you are allowed to increase or decrease your monthly payments, rather than keep to a set amount determined by your lender. You can have most of the different product types (e.g. fixed, capped, variable, discounted etc.) as a flexible mortgage although the choice is currently fairly limited. Most are based on the variable rate, so you may not get the cheapest rate. The degree of flexibility depends on the lender but generally, you will need to have made several monthly payments before you are able to benefit from making a reduced payment or taking a break from payments. Other benefits of some flexible mortgages include the ability to treat them like a bank account, having your salary paid in directly with a cheque book or even a credit card. They are particularly popular for people with income that varies during the year, meaning they can make payments to match the timing of income receipts. They are also useful if you are able to pay off the loan quicker than originally thought as you save on interest charges by doing so and can help if you need to increase your borrowings, for example to carry out improvements to the property.

MAIN ADVANTAGES
Ability to vary payments to suit your lifestyle.
Ability to pay off more of your loan early and save interest.
May provide full banking facilities.
Easy to pay off lump sums.
Can be useful for extra borrowings.

MAIN DISADVANTAGES
Rarely the cheapest rates available.
Usually require consistent payment history before becoming truly flexible.
Can be fairly complex.

CAT Standard Mortgages (Cost, Access and Terms)

In 2000 the government launched a scheme designed to protect borrowers from conditions and charges applied by lenders and which it thinks can sometimes be unfair. If a mortgage product conforms to certain rules it can say it has a 'CAT Standard' rather like a British Standard or Kite mark. To comply with the CAT Standard rules, for example, a variable rate mortgage must have no mortgage indemnity guarantee and cannot have any compulsory insurance and a fixed rate mortgage cannot have any extended redemption penalties. If a mortgage does not conform to the CAT standard, it does not mean that it is not 'consumer friendly' but you need to make sure you understand all the terms involved.

Stepped Rate Mortgages

These are products where the interest rate changes over time but to pre-set levels. For example, a product may have a fixed rate of 4.5% for 6 months then 5.5% for a year then 6.5% for a year then at the lender's variable rate after that. The same can happen with discount mortgages where there may be a 4% discount for 6 months, followed by a 1% discount for two years followed by the lender's variable rate. Generally we think these products are unnecessarily complicated and rarely offer a good deal for the consumer. They make it extremely difficult to compare different mortgages and often have onerous early redemption penalties. They can be attractive if your earnings are going to increase in the near future and you happen to find a product, which matches how you expect your earnings to change.

MAIN ADVANTAGES
Can sometimes match changes in your earnings level.
Sometimes offer attractive rates.

MAIN DISADVANTAGES
Usually unnecessarily complicated.
Often have onerous redemption penalties.
Difficult to compare with other products to know if you are getting a good deal