Mortgage Interest Rates
There has been a lot of talk lately about mortgage interest rates and it can get a little confusing. In this weeks blog we have provided an explanation of what interest rates are and the type of rates available. We have also provided you with an update as to what is happening in the mortgage market.
So what is an Interest Rate?
Interest is the money you pay to a lender in return for borrowing your mortgage from them. You will pay a percentage of the amount you borrowed, this is called the interest rate.
The Bank of England determine the Bank base rate and this can then affect the interest rate lenders will offer. If you are in a fixed mortgage you won’t affected by the change in interest rates for the duration of your mortgage deal. If you are on a tracker or variable rate then your mortgage payments will change according to the lenders interest rates.
A fixed rate mortgage is a type of mortgage where the interest rate on your mortgage stays the same for the duration of your deal. The mortgage duration is usually 2 or 5 years, but some lenders will let you fix for up to 10 years. A potential benefit of having a fixed rate mortgage is your payments will stay the same for the duration of the mortgage meaning you can budget accordingly.
If you have a fixed rate mortgage you will not be affected if the Bank of England change their interest rates.
A variable rate mortgage is a where the interest rate on your mortgage can fluctuate depending on your mortgage lender. This means that your monthly mortgage payments can vary either by increasing or decreasing. Your rates will change depending on the lender and will not necessarily be in line with changes to the Bank of England base rate, unless you have a tracker variable rate.
A potential benefit of a variable rate mortgage is that lenders typically allow overpayment which can help you pay off your mortgage earlier and potentially pay less interest overall.
A tracker mortgage is a type of variable mortgage rate that tracks the rates set by the Bank of England base rates. This will then affect how much your repayments will be each month. If the Bank of England decreases base rates then your mortgage repayments will decrease but if the Bank of England increases base rate then your mortgage repayments will increase.
A potential benefit to tracker mortgages is that you can be given an initial cheaper rate than fixed mortgage deals however these are subject to change depending on the Bank of England base rates.
Are Interest Rates Increasing or Reducing?
The Bank of England has raised the base rate again last month. However this does not necessarily mean that lenders are going to increase the fixed rates they are currently offering. Over the last few weeks several lenders have begun to reduce their mortgage interest rates which could be great news for the property market.
Following a steep increase in rates last year, we have begun to see many lenders starting to reduce their rates. Since December 2022 some lenders have reduced their rates by more than 1%. This could have a significant impact on monthly mortgage payments. The interest rates available will vary between lenders and also depend on your personal circumstances.
If you’re thinking of buying a new home or your remortgage is due then get in touch with us today and we can find the right deal for you.
Your home (or property) may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The actual amount you will pay will depend on your circumstances.