As a first time buyer you will come across a lot of different terms that you are not familiar with such as interest rates. They will come up a lot in conversation and on paper when you get serious about buying a house, so knowing what they mean and involve will make finding the best mortgage deal a lot easier.
At Key Mortgages, we can talk you through the basics of interest rates and their importance during the mortgage application process. We can look at your current situation and take the steps needed to provide you with a mortgage that is tailored to your needs and budget.
What are mortgage interest rates?
Mortgage interest rates determine how much the balance of your mortgage repayment loan will increase each month and are calculated as a percentage of this. In simple terms, the higher the interest rate, the higher monthly repayments will be. With a repayment mortgage you will pay a set amount of your balance back each month plus interest on top of that. Alternatively, an interest-only mortgage requires you to pay interest but none of the capital borrowed.
Fixed vs variable rate mortgages
During the early stages of arranging your mortgage, you will hear about fixed and variable rate mortgages, each designed to suit different financial needs.
Fixed-rate
With a fixed-rate mortgage, your interest rate is guaranteed to stay the same for a certain period of time. This can be as short as two years or as long as 10 years in some circumstances and your broker will discuss the best option to meet your needs and circumstances. Regardless of changing interest rates your fixed mortgage payments will remain unchanged.
Variable-rate
With a variable rate mortgage, your interest rates could adjust periodically which means your monthly repayments can change throughout the term. This is usually influenced by changes in the UK economy.
Variable rate mortgages fall under three categories: trackers, standard variable rates (SVRs) and discounts.
Tracker
Here, the rate moves in line or “tracks” a fixed economic indicator which is usually the Bank of England’s base rate plus a set percentage. So, If the base rate went up, the interest rate on your tracker mortgage would also rise and vice-versa.
Standard variable rate
Each mortgage lender has a standard variable rate which they can adjust when they like. This also tends to roughly follow the Bank of England's base rate movements but can be anything from two to five or more percentage points above the base rate. This rate is a ‘standard’ rate which mortgage borrowers will go onto once their mortgage deal ends.
Discount rate
If you chose a discounted variable rate mortgage, your interest rate would be set at a fixed percentage below a lenders standard variable rate. This rate can change which would also affect your mortgage repayments however, the interest you pay will always be charged at the agreed fixed percentage below the standard rate.
How can I get the best interest rate?
From the options above, fixed-rate mortgage interest rates will generally be higher compared with other variable deals. If you would like to have the security of knowing what your monthly mortgage repayments will be, this could be the most suitable choice for you.
As a broker, we can discuss your circumstances and what your aims are for the mortgage which will enable us to find you the right deal and see if you meet the conditions required for the most competitive rates on offer.
A few things that could help this are…
- Having a good credit score, so when lenders check your credit history they will get a good indication that you are good at repaying debt.
- Building up your deposit for as long as you can so you will have less to borrow and be at a lower loan to value ratio (LTV)
- Using a mortgage broker like ourselves. Being familiar with the different products on offer means we are able to advise on the lenders most likely to accept you. We also have access to the deals you might not have access to by applying for a mortgage directly.
If you want to know more about mortgage interest rates or would like to discuss your options as a first time buyer, don’t hesitate to give us a call to arrange an appointment.