During the term of a loan with variable interest rates, the lender can increase or decrease interest rates, thereby increasing or decreasing customers' monthly repayments.

Variable rates are affected by market conditions, competition between lenders and the rates set by the European Central Bank.

Variable-rate mortgages give homeowners flexibility because they can increase repayments or contribute lump sums without penalty. If interest rates fall, they will benefit from lower repayments, whereas people with a fixed-term contract won't.

However, if interest rates rise, they may make monthly repayments too expensive for some mortgage holders, who might wish they had fixed their mortgage instead.

Fixed-rate mortgages will guarantee monthly repayments at a certain level over a term of one, two, three, four, five or 10 years, making it easier for homeowners to budget in advance.

At the moment, fixed rates seem attractive because interest rates on one-year fixed-rate mortgages and on some two-year products are lower than standard variable rates.

The longer the fixed term, the higher the interest rate is likely to be. Entering into a longer fixed rate would only be a good idea if you thought interest rates would overtake and stay ahead of the fixed rate during that time. Substantial penalties may apply if customers pay off their mortgage during the fixed-rate period or if they want to switch out early.

Split interest rates are available at some lending institutions where part of the mortgage is on a fixed rate and part on the variable rate. Typically, the split will be half and half.

If rates fall, repayments on the variable part of the mortgage will reduce. If rates rise, mortgage holders have the security of knowing that only the variable part of the repayment will rise.