Mortgage Rates-how do they work?
Here at Waltham Estates, we know that mortgage interest rates can be confusing. As one of the most established estate agents in Walthamstow, we also know our fixed rates from our tracker rates. That’s why we’ve created a straightforward guide to help you navigate the mortgage rate market with confidence.
The Bank of England Base Rate.
Commonly referred to as the ‘Base rate’ this is the amount that the Bank of England charges to lend money to banks and building societies. Mortgage interest rates rise and fall as the base rate fluctuates. Banks and building societies react to changes in the base rate by altering the mortgage products available
Do you prefer the security of knowing how much your mortgage will cost each month? Then consider a fixed rate mortgage. If your rate is fixed at 3.5% and the Bank of England’s base rate rises, you will still pay 3.5% in interest until your deal ends.
Fixed rate products last for one to ten years. When your rate ends, you’ll be charged the lender’s standard variable rate unless you move to a new deal.
Standard Variable Rate (SVR)
Lenders can change their SVR at any time, as it doesn’t track the Bank of England’s base rate. However, you won’t be charged an early repayment fee if you move to a new deal or pay off your mortgage.
These rates offer a discount on the lender’s SVR, so they can still rise and fall if the SVR changes. Discounts are often set at 1-2% below the lender’s SVR and last for one year or more. Discount rates are not as popular when the base rate is low for a long period and there are lots of mortgage products available
Tracker rates track the Bank of England’s base rate but are set at a margin above it. So if the base rate is 0.5% and your tracker rate is set at the base rate plus 1%, you’ll pay 1.5%. Tracker rates last from one to five years.
Tracker mortgages are very tempting when the base rate is low, but make sure you can still afford those repayments if the base rate rises. Most tracker rates come with an early repayment charge, but there is some lender who offers products without an early repayment charge.
Similar to Fixed rates, capped rates guarantee that the interest rate you pay will stay below a rate set by the lender. However, your payments will still drop if rates go down. You’ll only find a few of these products on the market and they last between two and five years. Capped mortgage rates tend to be higher than tracker rates, as they offer more security.
Before you commit to a mortgage deal, always consider whether you could afford your repayments if the interest rate rises. Don’t forget to pop in to see us at Waltham Estates if you have any questions about buying or selling a property. If you are a landlord with a buy to let mortgage speak to us about your mortgage. We will be able to advise you about the impact of tax changes on your income.