If you’re applying for a mortgage for the first time or you are coming to the end of a fixed rate deal, understanding how mortgage rates work will help you to find the most advantageous deal.
Even a small difference in mortgage rate can make a significant difference to your finances, so you should take time to review your options.
In this blog we explain the most important information you need to help you find the most advantageous deal.
What are mortgage rates and how do they work?
When a mortgage lender provides a loan to buy a property or remortgage, they apply an interest rate on that loan. Along with any mortgage fees, your interest rate determines the cost of borrowing the money for your mortgage.
The difference between fixed, variable, and tracker rates
There are several different types of mortgage rate types:
- Fixed. With a fixed term mortgage rate you will pay the exact same amount each month for the duration of the term. Fixed term rates are available for 2, 3, 5 and 10 years and at the end of the term you have the option to remortgage to a new deal or your mortgage will revert to the standard variable rate.
- Variable. A variable rate means that the monthly mortgage payments can fluctuate. A standard variable rate (SVR) is set by the lender and can change at any time. SVRs are typically much higher than rates for other mortgage products and once a fixed term ends, the lender will move you onto their SVR unless you switch to a new deal.
- Tracker. A tracker mortgage is another type of variable rate which ‘tracks’ the Bank of England base rate. For example, a tracker rate might be the base rate plus 1%. If the base rate goes up 0.5%, so does your mortgage payment but if it goes down, your mortgage payment will decrease.
