Interest rates are a term you will hear when applying for a mortgage. Even if you have a mortgage now, you may not fully understand why you need to pay it or what they mean.
Rates can be variable rate, others fixed. You may wonder how these rates impact your monthly payments. Well, this short guide briefly answers your questions. If you’re still unsure you can contact us to talk about your mortgage interest rates.
What are interest rates?
Mortgage interest rates determine how much you’ll be charged to borrow and buy a property, and what your monthly repayments will be.
Your interest rates determines how much the balance of your loan changes each month. The higher the interest rate, the higher the repayment. Interest rates are always calculated as a percentage of your mortgage’s balance.
Most people have a repayment mortgage. This means each month you are paying an amount of your balance off as well as the interest rate. Those with interest-only mortgages don’t pay off any of their balance… they just pay off the interest.
Interest rates can go up as well as down, but as these official statistics show, over the past 10 years, interest rates have fallen.
Many homebuyers try to fix their mortgage rate. This means that it won’t change for a set period of time. Many lenders offer these deals for two, three or five years. This gives the customer security because they know what they are paying each month for a certain amount of time.
With a variable rate mortgage, your interest rate could go up or down each month, meaning the amount you repay changes each month. Most tracker mortgages follow the Bank of England base rate (which is currently 0.1 per cent). Your rate might be described as the ‘base rate + 2 per cent’. This means that your interest rate would be 2.1 per cent. But if the base rate changes, so too will your interest rate.
How do I get the best deal?
There are many factors when it comes to getting the best deal. For example, the bigger deposit you put down, the less money you have to borrow. This can leads to a lower interest rate. Also, if you have a good credit rating, paid your credit card bills on time and built up good rapport with the banks, you might access a lower interest rate too.
Depending on your situation, you might want a slightly higher rate that is fixed for a longer period of time. Or, you might want a lower rate but it could change sooner rather than later.
Mortgages are as individual as you because of your circumstances. Talking to a broker such as The Mortgage Dog means we can advise you of the best course. If you only use comparison sites, you may miss some of the small print on the likes of interest rates are other conditions.
To speak to one of our advisers, please don’t hesitate to contact us today.
Your home may be repossessed if you do not keep up repayments on your mortgage.