Title:
Choosing the best
mortgage interest rate
Word Count:
911
Summary:
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.
Keywords:
mortgage interest
rate, uk mortgage rates, mortgage guide, refinancing for a better mortgage
rate, uk mortgage broker
Article Body:
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%.
If you are on a standard variable rate then you may notice that some lenders
like to involve any rate increases with effect straight away. At any rate the
standard variable rate is not the cheapest option available (based on
circumstance). As a independent broker we can help you take advantage of any
cut-price offers from other lenders.
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.
Capped rates will tie you into a mortgage for a certain period of time, usually
between 1 and 5 years although recently there has been an introduction of
capped mortgages for 25 year periods.
Capped rates give you a mix of advantages of the fixed rates and variable
rates, again something is expected in return for this, the capped rate is
likely to be higher than any fixed rate you can get. Like fixed rates the
capped rate will make financial sense for those who are financially
stricken.
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.
How will the interest be charged? Ignoring the type of interest rate you decide
to go with one vital question to ask is how frequently is the interested
calculated. If you decide to go for a mortgage where the interest is calculated
daily then you will find yourself paying less interest over a period of time
because every payment will reduce the amount you owe. Current account and
flexible mortgages charge interest day by day. If interest is calculated
monthly you could end up paying more and you can end up waiting a month after a
payment is made before the interest is recalculated. But some lenders have
their foot in the door by calculating the interest payable on the amount due at
the start of the year and this could make a significant difference to the
amount of capital reduction over 12 months. It also means that if you make an
additional payment to reduce your mortgage it could be up to a year before this
reduces the amount of interest you are charged.
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.