With fixed rate mortgages, the borrower can lock into a fixed repayment cost each month over an agreed period of time and know that, irrespective of changing rates of interest, monthly payments will not be affected. Fixed periods can vary from one to twenty five years, two to five years are the most popular and most readily available. At the end of the fixed rate term, the interest rate usually reverts to the lender's prevailing variable mortgage rate.

Many providers offer an initial discounted rate. This takes the form of a limited period reduction in the normal variable interest rate, for example say, 2% for a year. This means that whatever the variable rate is during that initial year, the borrower will pay 2% less, thus making a saving. At the end of the discount period, the rate reverts to the lender's prevailing variable mortgage rate.

Variable mortgage rates have been available for many years. As the name suggests, the monthly repayment goes up and down in line with the lender's mortgage rate. This means that you cannot predict the monthly cost of the mortgage from one year to the next. This can cause major budgeting problems in a period of increasing interest rates. On the other hand, when interest rates fall, there is less to pay. Many lenders do not alter the rate for existing borrowers until the year-end. With interest rates used as a regulator for the economy, mortgage rates change frequently.

Tracker rate mortgages have been available for many years. As the name suggests, the monthly repayment goes up and down in line with the Bank of England's base rate. When the loan is set up customers are advised of the appropriate 'margin' to be applied to the loan. With this scheme you are guaranteed that a change in base rate will be reflected in the mortgage rate payable. This means that you cannot predict the monthly cost of the mortgage from one year to the next. This can cause budgeting problems in a period of increasing interest rates. On the other hand, when interest rates fall, there is the guarantee that your mortgage rate will fall by the same amount as the Bank of England base rate. With interest rates used as a regulator for the economy, mortgage interest rates have been known to change frequently.

Cashback mortgages can be ideal for first time buyers and those who have very little money to cover the various costs involved in obtaining a mortgage. Cashback mortgages allow you to borrow up to 75% of the value of the property with the cashback being used to cover the deposit or other costs such as legal fees, higher loan to value fees or stamp duty. Most lenders will pay the cashback after completion of the mortgage, although in some cases it is possible to have the cashback paid at the same time as the mortgage advance, enabling it to be used as the deposit.

A truly flexible mortgage allows you to make overpayments and underpayments, borrow back overpayments and, if you have built up enough credit, to take payment holidays. Another important feature is that interest is calculated monthly/daily, not annually in arrears, so overpayments have an immediate impact on what interest you pay. You can, therefore, significantly reduce the term of the loan and save thousands of pounds in interest payments if you are able to make additional payments during the term of the mortgage. A flexible mortgage can be ideal for people with inconsistent income, like the self-employed. And since some mortgage deals come with cheque books and debit cards, you could even use your mortgage as a bank account.

A capped and collared mortgage is a variable rate mortgage which has a fixed upper rate limit (the cap) and a fixed lower rate limit (the collar). This means that the borrower knows in advance the highest and lowest monthly payments that he may have to make. For example, if cap and collar rates are fixed at 5.75% and 3% respectively, the loan will be charged at the prevailing variable rate as long as this is not more than 5.75% or less than 3%.

LIBOR stands for the ‘London inter-bank offered rate’, an internal rate set by the British Bankers’ Association. It is an advisory figure helping individual banks, building societies and other lenders to set charges on loans to individuals (through all forms of loans, not just mortgages). At any one time the LIBOR rate will have figures for different periods – one week, three months, six months, a year and so on. Most LIBOR tracker mortgages are linked to the three-month figure.

You need not worry about the intricate details of LIBOR, but make sure you have some understanding of it, if you are considering getting a tracker linked to it. Incidentally, a look at the time-span figures can give an indication of what experts are thinking. If, for example, the LIBOR one-month rate is 3.50 per cent, the six-month rate is 3.25 per cent and the 12-month rate hits 3.75 per cent, it suggests the banks believe that interest rates might go down and then up again.