Mortgage interest rates – the basis of repayments
Mortgages normally come with an additional cost which is nothing but the interest you pay on the amount borrowed. When you already have a big loan like a mortgage, the interest can become really heavy and often pile up thousands of pounds on the amount you need to pay over the term of the mortgage. It is a simple logic that the lower the interest the lesser you will have to pay over the amount of the mortgage. It is thus important to take some time out and find the best mortgage deal for yourself.
There are a lot of reasons for the interest rates to vary which includes anything from your personal circumstances to the changes in the national economic trends. To keep an eye on the changes in the interest rate is not an easy job at all but you should be aware of the headline interest rates. To put it simply, it is a benchmark for banks, which is announced on a monthly basis.
Factors affecting headline mortgage rates:
The Bank of England’s base rate
LIBOR i.e. London Inter Bank Official Rate
Number of risks associated with lending
The rate of unemployment
Competition between the lenders
These rates affect more to the advertised rates and not the rates at which mortgages are offered to individuals.
Factors affecting the individual’s mortgage rate:
Mortgage rates can vary due to numerous assessments that lenders make and they are assessed on your personal circumstances. These could be:
Loan to Value (LTV) ratio: It solely depends on your deposit amount and is actually the ratio of the deposit and the actual amount to be borrowed. If the ratio turns out to be smaller then you will get a loan at a much lower interest rate.
Credit report: This is a very important check made by the lenders as they want to gauge your personal behaviour towards finances. By checking your credit score they can go through your borrowing history, financial aspects as well as other things like the frequency with which you change homes etc.
It is important to know that mortgage rates change with the kind of mortgage you choose to buy. The different types of mortgages are explained below:
Fixed Rate Mortgage: In this type, when you borrow money, you need to pay a fixed rate of interest for a certain pre-defined time like two, three or five years. The best part is that you know what you need to pay at the end of the month but the drawback is that the rate of interest in this case is higher. Again, you will be paying higher repayments as long as the fixed rate period lasts.
Standard Variable Mortgages: These mortgages vary as per the standard variable rate offered by the lender. This depends highly on the economic climate and so things including your repayments go up and down.
Tracker Mortgages: These follow the Bank of England’s base rate and are always placed at a percentage above the base rate. Also, they vary as per the variation in the base rate so you have to be aware of the changes in the bank’s base rate. The rates can fluctuate and so can your repayments.
To sum up, mortgage interest rates play a big role in your actual deal and so, it is always advisable to keep them in mind when deciding to borrow. For more details on mortgages, you can read our comprehensive guides and compare mortgage rates on our website freepricecompare.com to check out the most suitable deal for you. For any dilemmas and queries, you can call our friendly team of mortgage and loan experts on 02034757476.