On 2nd August 2018, the base interest rate in the UK was raised from 0.5% to 0.75%. This is the highest rate seen since 2009. However, even with this rise, mortgage rates are incredibly low and so there are still plenty of great deals out there for anyone with a mortgage or those hoping to obtain a mortgage.
Why is this? Banks and building societies use the base rate when calculating their interest rates for some mortgage products. If you already have a mortgage, depending on the type, you may have already seen a rise in your monthly payments.
However, if you are contemplating moving house, you may need to get a mortgage or review your existing one. You may have noticed that there are many mortgage options available, so which mortgage is right for you?
A mortgage is a big financial commitment for you and probably the largest amount of money that you will ever have to borrow. It’s therefore imperative that you understand what the different types involve so that you get the one that is best suited to your needs.
Mortgages fall into two categories:
- Variable Rate
- Fixed Rate
Within Variable Rate Mortgages, there are two main types:
In a nutshell, your mortgage will “track” the Bank of England base rate and most lenders will add 3-4% onto that so at the present rate, your mortgage could be as low as 3.25%. These can be set up with an introductory deal period which then leads onto the lender’s variable rate or you could have a lifetime “tracker” where your mortgage will track the Bank of England rate for its duration.
The lender will have a standard variable rate which you will pay with a fixed discount. So if your lender’s rate was 4.5%, you might pay 3% with a 1.5% discount.
These deals can be in steps whereby you pay a certain amount for a period of time, for example it might be at a lower rate initially and then at a higher rate after a year or two. There is usually an amount that the rate can’t fall below or can’t go above.
Fixed Rate Mortgages
Here, so that you know exactly where you stand, you will pay the same interest rate for the entire period, irrespective of what goes on with interest rate changes.
There are other types:
- Interest Only
- Cash Back
Interest Only and Repayment
Interest Only mortgages are rare in today’s environment but here you pay just the interest and none of the capital whereas with Repayment you pay off some of the borrowed money.
Flexible and Cash Back
With Flexible, the word is key! You have the opportunity to over-pay or to underpay, take holidays or make withdrawals.
Cash Back mortgages as they imply let you take cash back when you take them out. This is to cover expenditure when you move. However, these may not be the cheapest!
Here at award winning Maddisons Residential selling houses throughout Kent and Sussex, we will be delighted to arrange for you to speak to our experts in arranging mortgages. It’s all part of our exceptional service so please call on 01892 514100.