There are many ways in which interest rates are charged by lenders. For example, lenders may charge fixed interest rates, variable interest rates or discounted interest rates in order to levy an interest from lenders.
In a variable interest rate, the interest that is charged from the borrower depends on the condition of the economy. For example, interest rates will change according to the rates that are set by the government from time to time. This means that borrowers are not assured of a steady repayment schedule. On the contrary, they will have to pay interest variably. This is often disadvantageous to those with a tight budget. An arrangement fee is usually payable when taking out this type of mortgage.
When people avail a fixed-rate mortgage, the company may charge early redemption penalties that in some cases may even extend beyond the fixed rate term. However, many lenders now provide fixed-rate mortgages where there is no penalty for paying off or changing the mortgage once the fixed rate period ceases.
Discounted rates are very convenient if borrowers feel that they will not be able to raise much money in the beginning of the mortgage repayment period. Such mortgages have a lower rate of interest in the earlier years and are predominantly intended for first time buyers, who initially have a low income. However, borrowers need to be careful while availing such a loan because in some cases they may cause people to lose money.
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Source: http://www.articlealley.com/article_479828_19.html
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