When taking out a property loan, monthly mortgage rate payments may vary depending on the type of mortgage product taken out. Even those who require the smallest of mortgage loans will have to take into account current mortgage rates as every borrower’s payments are based on them.
What are Mortgage Rates?
When borrowers are finding mortgages which will suit their financial needs in terms of interest payments, it is not only the mortgage type which will need to be considered. They will also need to consider the mortgage rates available, which are based on the Bank of England base rate and set by mortgage lenders. The Bank of England base rate is a measure used by lenders for many mortgage products, meaning that in the case of variable rate mortgages, tracker mortgages and the like if the base rate fluctuates, so will the mortgage interest rate. This is not the case with fixed rate mortgages, and is only partially true with capped rate mortgages (where the rate can fluctuate, but will not rise above a preset level).
Variable Mortgage Rates
Due to movement in the Bank of England base rate and in the financial markets, variable mortgage interest rates often fluctuate. This means that even if a borrower has obtained a loan with cheap mortgage rates, in the long term this rate is likely to rise, so it is hard for anyone to ascertain which type of variable rate mortgage (or similar type) will result in the best mortgage rates long term.
Indeed, variable mortgage rates can rise or fall at any time during their term, as lenders of variable rate mortgages have more of a direct influence over monthly interest payments. Though they do tend to follow the Bank of England base rate, a variable mortgage rate can be set higher or lower even if the base rate remains unchanged, which does not offer as much protection as a mortgage on a fixed rate would.
Fixed Mortgage Rates
Homeowners on fixed mortgage rates are charged a set interest amount on their loan for an agreed period of time. Such a mortgage is usually very appealing as the interest payments are consistent each month, and will be protected from any rises in the Bank of England base rate, meaning they can often be the cheapest mortgage rates going. Nevertheless, borrowers may not benefit from low mortgage rates if interest rates drop, and when the fixed rate term ends, they may face a sudden jump in monthly payments if their lender moves them to a high standard variable rate.
Interest Only Mortgage Rates
A mortgage that is entirely paid back by interest payments is an interest only mortgage. Even if interest only mortgage rates are higher than those with other rates, the monthly payments will still be significantly cheaper as no capital repayments have to be made during the mortgage term. Buy to let mortgage rates are usually on an interest only basis, though a sharp rise in the interest only mortgage rate may mean that other interest payment methods work out cheaper in the long run for many landlords.
Compare Mortgage Rates
Today good mortgage deals are increasingly hard to obtain because of the tough economic climate, however mortgage brokers and specialist websites can be good starting points to compare deals and find some of the lowest mortgage rates offered on the market. In some circumstances even banks’ or building societies’ basic mortgage rates may be the best mortgage rates for particular borrowers, especially if they have a poor credit rating and have difficulty obtaining some of the more competitively priced mortgages. In the end, the best mortgage rates are simply the best ones that can be obtained given the borrower’s current financial circumstances.
Mortgage Rate Calculator
Homebuyers may also want to consider using a mortgage rate calculator to assess what mortgage rate they can afford, and what type of rate is most suited to their financial situation. Using a mortgage calculator in this way is much easier since the advent of the internet.