For many people, their mortgage payment is one of the largest monthly bills that they face, so any fluctuation in such payments can have a significant impact on their budgeting. The interest rate is usually the main factor which will determine what your monthly mortgage payment will be, and can also be the main cause of such fluctuations. Remember, your home may be repossessed if you do not keep up repayments on your mortgage. It is therefore important to understand the part that interest rates play in different types of mortgage contract:

Variable Rate: Also called standard or floating rate, these are probably the simplest form of mortgage. You borrow money at the lender's normal rate of interest, and when that rate changes, your monthly payments also change, up or down.

Tracker: As the name implies, these mortgage 'track’ a specified rate (e.g. Bank Base Rate +1%) so whenever that fluctuates, so do your monthly payments.

Loyalty Rate: There is usually strong competition amongst mortgage providers for customers, and once they have a client they are often keen to hang on to them. For this reason many providers offer a discount on their standard variable rate for existing customers who meet their lending criteria.

Discounted Rate: These offer a discount on the Standard Variable Rate for a given period of time, usually between 2-5 years, at the end of which you normally revert to the standard rate. You benefit from the discount and from lower payments if the variable rate reduces, although if it goes up so will your mortgage payments. Such mortgages also usually have higher early repayment charges.

Fixed Rate: These fix the rate at an agreed level for a specified period of time, at the end of which you will normally be expected to stay with the lender for an agreed period while paying their standard variable rate. The benefit of these mortgages is that for a time they give you certainty over what you will be paying which makes budgeting easier. However, you may not benefit if market interest rates go down during the fixed period, and such schemes often have high early repayment charges.

Capped Rate: These are similar to fixed rate in that your mortgage will not go up for a specified period but have the benefit that if the market interest rates come down, your monthly mortgage payments may also be reduced. However they do still typically have high early repayment charges and are normally more expensive than a standard fixed rate mortgage.

Offset Mortgages: These are often attractive for people who have significant funds in deposit accounts with the lender, who will then offset any interest on such deposits against the interest due on the mortgage.

As you can see, selecting the right type of mortgage with the right interest arrangement requires careful consideration. Your Independent Financial Adviser or Mortgage Adviser should be able to help you find the solution that suits your needs.

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