Mortgage Interest Rates
Advice on mortgages
There are a number of different options that you can choose from when you decide how you will pay interest to your mortgage lender.
Variable rate
A variable rate goes up and down in line with Bank of England base rates. When rates go down, so do mortgage repayments, but if rates go up, it means you have to pay back more interest.
Discounted rate
A discounted rate is normally a variable rate which is offered with a discount at the start of the mortgage term.
Cashback
A cashback rate offers borrows the chance to earn cashback on what they repay. This then becomes payable when the mortgage is repaid.
Fixed rate
A fixed-rate mortgage will set an interest rate for a fixed period of time, normally 2-5 years. Fixed term rates tend to be slightly less than variable rates, but the longer that the fixed rate is set for, the higher it will be. The major advantage of a fixed-rate mortgage is that you can plan exactly how much you will be paying out each month without having to worry that you may have to suddenly pay a much higher rate. Obviously the disadvantage to this is that if rates drop you will not reap any advantages from it. If you want to pay off your mortgage early and are on a fixed-rate mortgage, you may be charged a fine.
Capped rate
A capped rate works in a similar way to a variable and fixed-rate mortgage. You can keep control of the amount that you are repaying as the interest rate is capped, and if rates go down, so will your interest repayment rates, meaning you will benefit either way. Many capped rates have a set lower rate which your interest rate will not be able to go below.
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