If you are looking at the different kinds of mortgage you will then need to consider the various kinds of ways of paying interest. How mortgage rates are set? Find out here.

Having looked at the different kinds of mortgage you will then need to consider the various kinds of ways of paying interest. You may find that one suits your needs better, depending on whether you need to know exactly how much you will be paying out each month, or whether you need to be always paying the lowest rate possible.

Begin by checking out current interest rates and rate movements when shopping for a mortgage. Mortgage rates generally rise and fall along with Wall Street securities and generally reflect the overall direction of interest rates. By keeping an eye on mortgage market trends and key economic indicators, a borrower has a better chance of obtaining interest rate savings.

How mortgage rates are set? A Standard Variable Rate (SVR) is a mortgage rate set by mortgage lenders that decides the interest rate. The lender bases its SVR on the Bank of England base rate (usually between 2 and 4 per cent higher), so when the base rate changes, the SVR will also change. The upside of an SVR mortgage is that if interest rates fall, so do mortgage repayments, but the obvious disadvantage is if rates rise, so do repayments, and there is no cap on how high the rates can rise.

Mortgages and bad credit mortgages are differed by rates on the following categories. A tracker rate mortgage is a mortgage that tracks another rate - usually the Bank of England's base rate but some mortgage lenders track the US dollar interest rates for example. The advantage here is that should the base rate be cut, you will benefit immediately as you don't have to wait for your mortgage lender to decrease his SVR. Of course, base rate rises are also reflected in your mortgage rate straight away, but then lenders usually aren't shy about quickly increasing their SVRs!

Capped rate mortgage is a mortgage which guarantees the interest rate charged will not rise above a certain level. But it may fall in line with variable rates. Capped rate mortgages are supposed to offer the best of both variable and fixed rate deals.

You agree to have a limit - a cap - on the maximum amount of interest you will pay over a particular period of time while allowing it to fall if the variable rate drops. If the variable rate goes higher than your agreed capped rate then you're only paying up to the agreed capped rate. Whereas if it falls below your capped rate then you pay less as well.

The next is Discounted Rate mortgage. A discounted rate is based on the mortgage lender's SVR and offers a discount of a certain percentage below the SVR for an initial period. After this period interest on the mortgage is charged at the lender's SVR. Discount mortgages can offer good deals for those initial periods, with many mortgage providers offering large percentage discounts over their standard rates.

The key selling point of a fixed rate mortgage and bad credit mortgage has always been payment security. You know that the rate you will pay for your mortgage will stay the same for the pre-agreed term, normally two, five or ten years. So whatever else happens to interest rates and the economy your monthly mortgage payments won't change. This is what makes fixes such good choices for first-time buyers or anyone else stretching to climb up the housing ladder.

About variable rate you should know that this is the rate which moves up and down with changes in the bank base rate and is often higher than the special offers available on fixed, capped and discounted rates. It tends to be the rate that these mortgages revert to once the "special offer" period is over.