Mortgages - Types Of Interest Rate
When you have researched into all the different mortgage types
and found a suitable one for you. Now is time to look into what
type of interest rate you wish to pay? The type of interest you
wish to pay will depend on your circumstances and how much you
are willing to pay out every month. You will find out below that
not all interest rates/types are the same. Discounted rate
A discounted rate allows the buyer to pay a reduced payment for
a fixed amount of time. After the fixed term is aver the rate
usually increases to the national base rate. Discounted rates
are attractive for first time buyers and also home buyers who
require extra cash for renovations. The term of discount does
give you time to get used to having a mortgage payment.
Fixed rates
With a fixed rate mortgage you are guaranteed the same rate of
interest every month for a fix period or term. This rate will
not fluctuate as long as you are in an agreement for a fixed
term. The fixed term can be anywhere from 1 to 7 years. Do be
careful when taking a fixed rate mortgage term don't forget to
ask the lender if you have any obligation to stay with the
lender after the fixed term is over?
Variable rate
Variable rate mortgages do tend to fluctuate around the base
rate, and are generally higher then the discounted, fixed and
capped rates that are also available. Usually, after you have
been at a discounted rate, your interest rate will move up to a
variable rate. This could be for a specified time you have
agreed to with the lender.
Capped rate
With a capped rate mortgage, the lender will cap the mortgage
rate to a specific amount, which allows the interest rate to
never rise above this level for a fixed term. However if the
interest rate decreases? So will your rate.
Tracker mortgages
A tracker mortgage actually tracks the Bank of England base
rate. This means your mortgage stays in line with interest
rates. The way a tracker reflects on your monthly mortgage
interest payments is that they go up when the base rate goes up
and go down when the base rate goes down.
Similar to a standard variable rate mortgage a tracker follows
the percentage rate imposed by the Bank of England. Unlike the
standard variable rate mortgage changes annually or monthly a
tracker mortgage guarantees to follow changes in the Bank of
England base rate within 2 weeks of the interest rate changing,
allowing the borrower to benefit from both falls and rises of
the interest rate quicker.
However, there are disadvantage to tracker mortgages. If
interest rates were to rise sharply, so too would the cost of a
tracker, so in situation like this you would lose out and find
yourself paying more per month that you did the previous month.
In this type of situation a fixed rate or a capped rate mortgage
would have been advantageous to the borrower.
Trackers do work better for the borrower when interest rates are
falling but if you look at the bigger picture, they give you
clear insight to whatever the Bank of England does with rates.
With a tracker both the borrower and the lender know exactly
what they are getting.
Flexible Mortgages
With a flexible interest mortgage, you the lender can usually
pay more if you have extra cash available, pay less if you need
to save a little, maybe even take a holiday from your payments.
Flexible is what it is, flexible. Also the interest on a
flexible mortgage is calculated daily instead of annually. So
you reduce the interest amount with every payment.
Checking the APR
Always remember to check the Annual Percentage Rate (APR) of the
mortgage you are considering taking out for a specified term.
Usually the lower the APR the cheaper the rate at which you will
pay back every month. However do be careful, some lenders will
offer you the opportunity to take a very low APR over a fixed
period and then a standard rate for a further fixed term.
Situations like this can potentially turn to disaster for some
people. If you have discounted mortgage rate for two years at
3.9% which totals a monthly payment of