Choosing the best mortgage interest rate
Posted by Nick Niesen on October 29th, 2010
One of the most important aspects of buying a property is the mortgage interest rate that you can obtain. After all your looking to borrow the amount required for your property for the lowest possible cost.
Standard variable rate is the typical rate of interest that lenders use and it is generally the most expensive option for the borrower. The standard variable rate is the rate of interest decided by the lender which maybe loosely connected to the Bank of England base rate by a margin normally around 2%.
A fixed rate is exactly as its called, the rate of interest is fixed over a certain period of time, generally between 1-5 years. Fixed rate mortgages are generally easier to manage since you?ll know how much is needed for the monthly repayments on your mortgage. The fixed rate mortgage is ideal for people who maybe under financial stress and need to know where they stand from cheque to pay cheque. Fixed rate mortgages are also suitable if interest are set to rise in the early years of a mortgage. Be aware that mortgage providers are usually one step ahead to adjust fixed rates accordingly. A Fixed rate mortgage means you could end up stuck with paying more then others if the interest rates fall below the figure you?ve adjusted yours to.
Discount rates are a percentage of the lenders variable rate, so your repayments will rise and fall in accordance with the lenders normal rate but you will be paying at a reduced rate over an according time period. This is ideal for first time buyers as a discounted mortgage can give you a few years of breathing space. A 1 -2% discount is very good if there is no lock in period afterwards, with the benefits of this come the ability to remortgage with another lender when the discount rate period draws to an end. Unfortunately you may often find you are locked in for another couple of years on the variable rate so you will not be able to get out of this sort of deal unless you are prepared to face huge redemption penalties. Discount mortgages offer good value for money - but only if there is no lock-in period once the discount has come to an end.
A capped rate will put a barrier to your interest rate you will pay over a certain period of time. If the lenders variable rate exceeds the capped rate then it is here you will benefit, but if the interest rate falls below the capped rate then you will paying the same as many others.
Tracker rates tend to follow the Bank of Englands interest rate with a margin either above or below the rate, this is decided by the lender.
You can compare mortgages by looking at the amount you need to pay every month. Don?t be fooled by latest headline rates as they can be misleading as we know different companies charge different interest rates in different ways. The ideal target is a competitive interest rate that carries no redemption penalties so that it is cheaper to move your mortgage elsewhere if more attractive mortgages become available.
By law mortgage providers have to provide an Annual Percentage Rate (APR) for their products. It illustrates the true underlying interest rate, including all the charges, over the entire term of the loan. This means it adjusts for things such as annually charged interest. Comparing the APR of one loan against another can also help you get a better feel for which is the most competitive.
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About the AuthorNick Niesen
Joined: April 29th, 2015
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