Stepped Rate Mortgages

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Stepped Rate Mortgages: Your Options

• Stepped fixed rate mortgages: these are lower risk option, because you will know exactly what your interest rates will be during each stage of the initial mortgage term. 
• Stepped discount rate mortgages: The discount would usually be from the lender's standard variable rate (SVR).  The SVR is the lender's default rate, and one which all customers automatically switch to when they are at the end of their initial period.  The discount would be of say, 2% in the first year, 1.5% in the second year etc.
• Stepped base rate tracker mortgages: Your interest payments would be linked directly to the Bank of England base rate, so for example, you may be offered a rate 1% above the base rate for the first year, 1.5% above it for the second, and so on.  It is worth checking to see if your lender imposes a minimum cap on the interest rates, should the base rate dip below a certain level.
• Stepped rate mortgages with cashback: With this mortgage type, the lender would couple a lower interest rate with a cash back bonus of typically 0.5% or 1% of the total mortgage amount, which can then be used as you see fit.  This is very useful for first-time buyers with furniture expenses, building work to complete or Stamp Duty to pay.