When it comes to search for a mortgage, monthly repayment is not the only thing to consider. There are still some other aspects to understand including the mortgage rates, the interest rates, and the possibility of increasing rates.
In this guide, you will learn many types of mortgage rates so you will be knowledgeable about which type of rates that your lender use.
Further, understanding the rates will make you easy to deal with any kind of rates charged by the lender. Well, it is necessary to know all types of mortgage interest rates before the property search.
Mortgage Interest Rates
In mortgage, there is two primary types of interest rates. They are the fixed mortgage rates and the variable rate. Further explanation of both types is as follows:
Fixed Rate
Fixed mortgage rates are the interest rates charged to you. The rates will stay similar for years to come regardless what happens to the market. Typically, the fixed rates are termed in two, three or five years. When the period ends, you will be directed to a Standard Variable rate (SVR). However, if you remortgage, you will have the same rule in paying the rate.
Fixed rates tend to be lower than the later rate. Further, this rate can compromise your budgeting. The downsides are the higher rate deals and the fatal fall of the interest that cause you losing the benefits.
Therefore, it is highly recommended that you look for new mortgage when your is close to the end of period. Otherwise, you will be automatically directed to the variable rates which tend to be much higher.
Today, most mortgages are designed with the portable feature. This means that your mortgages can be moved to a new property with the same rule of applying for new mortgage. Requirements and your affordability will be evaluated.
Variable Rates
In comparison, variable rate is the changeable rate that you can pay based on the term and condition. As the term and condition can change due to certain reasons, the interest do change as well. Yes, the rate can change anytime. This seems requiring you to have enough savings you should set aside.
Once the rates are increased, you are able to pay. Luckily, variable rates are usually offering discounts in the starting period.
Standard Variable Rate (SVR)
The next mortgage rates you should know before applying for the mortgage is the standard variable rate (SVR). This is the more widely-used mortgage rates among the consumers. SVR often follow the Bank of England’s base rate movements, making the rates rise or fall just after the Bank’s base rate.
If your lender tends to charge you this rate, your mortgage will last and won’t end unless you move to another mortgage deal. One reason why most consumers like this rate is the fact that they can leave at any time.
Discounted Rates
Discounted rates are the rates that are derived from the Standard Variable Rates. These rates are available only in a certain period, usually two or three years. However, you cannot expect to het the lower interest rates though you get a bigger discount.
For example, the first bank offers 2% discount off a SVR of 6%, requiring you to pay 4%. The second bank offers 1.5% discount off a SVR of 5%, requiring you to pay 3.5%. Though the first bank’s discount is bigger, the second bank will still be the more affordable option.
In short, the discounted rates offer the cheaper rate with the lower monthly repayment. You can also pay less each month if the lender cuts its SVR. The only downsides are the possibility for the lender to raise its SVR any time and the increasing discount rate if the Bank of England base rates rise, too.
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Tracker Rates
Similar to discounted rates, tracker rates also move following the other interest rate. It follows the Bank of England’s base interest rates. If the Bank of England’s interest rates rise, tracker rates will also rise plus a few percent more.
Tracker rates are available in short period of time. They can be for two or three years. These rates will last for how long your mortgage lasts. Or, they will end as you move to the other deal.
As the tracker rates are following the other interest rate, the mortgage payments will raise if the rates rise. And when you want to turn to another deal, you are required to pay an early repayment charge.
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Overall, mortgage rates vary depending on which your lender sets for your mortgage. In this case, it is crucially necessary to know all types of mortgage rates in order that you won’t be shocked about the rates rules. Different interest rates, different rules of payments. Their method of charging the rates may be similar but there is a bit difference you will notice then.
