The interest rate you can get on your mortgage is one of the most important parts of buying a home. After all, you want to borrow the money you need for your house for as little as possible.
Standard variable rate is the typical interest rate that lenders use, and it is usually the most expensive option for the borrower. The standard variable rate is the interest rate set by the lender. It may be loosely tied to the Bank of England base rate by a margin of around 2%.
If you have a standard variable rate, you may notice that some lenders like to make any rate increases take effect right away. The standard variable rate is not, in any case, the cheapest option (based on circumstance). As an independent broker, we can help you take advantage of any low-cost deals that other lenders may be offering.
With a fixed rate, the interest rate stays the same for a certain amount of time, usually between 1 and 5 years. Fixed-rate mortgages are usually easier to handle because you'll know exactly how much you need to pay each month. People who are worried about money and need to know where they stand from paycheck to paycheck should get a fixed-rate mortgage. Fixed-rate mortgages are also a good choice if the interest rate is going to go up in the first few years of the loan. Be aware that mortgage companies are usually one step ahead of you and will change fixed rates to fit the situation. If you have a fixed-rate mortgage, you may have to pay more than other people if the interest rates drop below the number you've set yours to.
Discount rates are a percentage of the lender's variable rate. This means that your payments will go up and down with the lender's normal rate, but you will pay at a lower rate for a certain amount of time. This is great for first-time buyers because a mortgage with a lower interest rate can give you a few years to settle in. A 1-2 percent discount is great if there is no lock-in period afterward. This means that when the discount rate period ends, you can refinance with another lender. Sadly, you may find that you are locked into the variable rate for another couple of years, so you won't be able to get out of this deal unless you are willing to pay huge penalties. Discount mortgages are a good deal, but only if there isn't a lock-in period after the discount is over.
With a capped rate, the amount of interest you pay over a certain time period is limited. If the variable rate of the lender is higher than the capped rate, you will benefit. If the interest rate drops below the capped rate, you will pay the same as many other people.
With a capped rate, you can only get a mortgage for a certain amount of time, usually between 1 and 5 years. However, recently, capped mortgages for 25 years have become available.
Capped rates give you some of the benefits of both fixed and variable rates. Again, this comes at a cost, as the capped rate is usually higher than any fixed rate you can get. Like fixed rates, capped rates make sense for people who are having trouble paying their bills.
Tracker rates tend to follow the interest rate set by the Bank of England, plus or minus a margin set by the lender.
How will the interest be added to the loan? No matter what kind of interest rate you choose, a very important question to ask is how often the interest is calculated. If you choose a mortgage where the interest is calculated every day, you will pay less interest over time because each payment will bring down the amount you owe. Every day, interest is added to current accounts and mortgages that can be changed. If interest is calculated every month, you might pay more, and you might have to wait a month after making a payment before the interest is recalculated. But some lenders get a foot in the door by figuring out the interest due on the amount due at the beginning of the year. This could make a big difference in the amount of capital reduction over the course of a year. It also means that if you make an extra payment to pay down your mortgage, it could take up to a year for the interest you pay to go down.
When comparing mortgages, you can look at how much you have to pay each month. Don't let the latest headline rates fool you. We know that different companies charge different interest rates in different ways, so don't let headline rates fool you. The best goal is a competitive interest rate with no penalties for early payoff, so that it is cheaper to move your mortgage to a better deal if one comes along.
Mortgage companies are required by law to give customers an Annual Percentage Rate (APR). It shows the loan's true interest rate, including all fees, over the whole length of the loan. This means that it changes for things like interest that is charged once a year. When you compare the APRs of two loans, you can also get a better idea of which one is the best deal.
