One of the most important aspects of buying a property is the mortgage interest rate that you can obtain. After all, you want to borrow the least amount of money possible for your property.
This is the most common interest rate used by lenders, and it is usually the most expensive option for the borrower. The standard variable rate is the interest rate set by the lender, which is typically linked to the Bank of England base rate by a margin of around 2%. If you have a standard variable rate, you may notice that some lenders like to include any rate increases with immediate effect. In any case, the standard variable rate is not the most affordable option (based on circumstance). An independent broker can assist you in taking advantage of any low-interest rate offers from other lenders.
A fixed rate is exactly what it sounds like: the interest rate is fixed for a set period of time, usually between 1 and 5 years. Fixed rate mortgages are generally easier to manage because you will know how much is required for monthly mortgage repayments. The fixed rate mortgage is ideal for people who are under financial stress and want to know where they stand from pay check to pay check.
Discount rates are a percentage of the lender's variable rate, so your repayments will rise and fall in accordance with the lender's normal rate, but you will pay at a lower rate over a set period of time. This is ideal for first-time buyers because a discounted mortgage can provide you with several years of breathing room.
A capped rate limits the amount of interest you will pay over a set period of time. If the lender's variable rate exceeds the capped rate, you will benefit here; however, if the interest rate falls below the capped rate, you will pay the same as many others. Capped rates bind you to a mortgage for a set period of time, usually between one and five years, though capped mortgages for 25-year terms have recently been introduced.
Capped rates combine the benefits of fixed and variable rates; however, something is expected in return; the capped rate is likely to be higher than any fixed rate available. The capped rate, like fixed rates, will make financial sense for those who are struggling financially.
Tracker rates typically follow the Bank of England's interest rate with a margin either above or below the rate determined by the lender.
How will interest be calculated?
Regardless of the type of interest rate you choose, one critical question to ask is how frequently the interest is calculated. If you choose a mortgage where the interest is calculated daily, you will end up paying less interest over time because each payment reduces the amount you owe. Daily interest is charged on current accounts and flexible mortgages. If interest is calculated monthly, you may end up paying more, and you may have to wait a month after making a payment before the interest is recalculated.
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Source: Ezinearticles
