Whether you’re applying for a mortgage for the first time or looking for a new mortgage deal, finding the best mortgage rates for your circumstances can be a challenge. With so many different types of mortgages to choose from, frequently changing interest rates and a plethora of lenders to wade through, choosing which mortgage deal to go for can be a daunting task. If you’re completely at a loss you could let an independent financial advisor do the hard work for you, but expect to pay handsomely for their time. Most of the lenders will have mortgage advisors who can talk you through their products and suggest which deal may suit you best but they will only be able to discuss mortgage rates and deals offered by that particular lender. The alternative is that you do the research yourself, using price comparison and personal finance websites to point you in the right direction.
Individual lenders will set their own mortgage rates depending on the rate of interest set by the Bank of England. Mortgage rates are usually higher than the Bank of England’s base interest rate and will change in line with any change in the base rate. The lenders will sometimes pre-empt a base rate change and change their mortgage rate, if the feeling amongst the financial community is that the Bank of England may move the base rate up or down in the near future.
If you have one particular lender in mind, it’s easy to find out an individual lender’s current mortgage rate. As well as information on their website there’ll be posters and leaflets in their High Street banks and premises and probably newspaper, TV and radio adverts.
However, if you’re looking for the best mortgage rates and you don’t want to spend hours trawling through the individual websites or walking up and down the local High Street, the best place to start is a price comparison website. Sites such as moneysupermarket.com and money.co.uk will list the best mortgage deals available at any one time from a wide pool of lenders.
Not only do different lenders offer different mortgage rates, any individual lender will have a number of different rates available to offer to customers. There are a number of different mortgage deals available and the interest rate will vary according to the type of deals.
Mortgage rates will be different for first time buyers; remortgages; home purchases or buy to let mortgages. These deals offer not only different rates but different services so it's important to compare the same service you are looking for.
The different mortgage rates include:
Standard variable rate: This is the default mortgage rate offered by lenders and will often be the rate you see advertised. The rate can vary month by month as the base rate changes or financial forecasts alter. There is no fee for a standard variable rate mortgage but despite this, most mortgage borrowers find that other types of rates offer a better deal.
Fixed rate: The interest rate is fixed for an agreed term, usually two or five years. Whilst the interest rate is often slightly higher than the standard variable rate and there is usually a set-up fee, fixed rates are popular as they come with the peace of mind of regular, unchanging monthly payments regardless of fluctuations in the base rate. Fixed rates are great if the base interest rate rises during your agreed term as your payments will stay the same instead of increasing too, but you could be unlucky and be locked into a higher interest mortgage rate while the base rate drops.
Tracker: A tracker mortgage is linked directly with the Bank of England’s base rate. The mortgage interest rate is usually around a couple of percent higher than the base rate and only changes if the base rate varies, maintaining the same percentage difference. Tracker interest rates are usually lower than fixed rates but obviously come with the risk of higher monthly mortgage payments in the future. They are usually for a fixed term and you will be penalised if you leave your deal during that period.
Discount mortgage: Like a tracker mortgage, a discount mortgage will have variable payments but instead of tracking the Bank of England’s base interest rate, it tracks the individual lender’s standard variable rate of interest which can be changed at any time irrespective of the base rate. Again, the interest rate is lower than a fixed rate but your payments are totally at the whim of your lender. A discount mortgage deal is usually for a fixed term and you will be penalised if you want to leave before the end date.
Offset mortgage: This is a popular product with people who have savings. Instead of your savings earning interest, the savings are offset against your mortgage. As a result, you pay less interest on your mortgage debt and it should mean that you end up paying off your mortgage more quickly. Offset mortgage rates can be variable or fixed but the rates tend to be higher than those on standard variable or fixed mortgages.
Most lenders and many of the comparison websites will have a mortgage calculator. This enables you to find out how much your monthly repayments would be with any mortgage rates offered by using information including the value of your property, how long you want your mortgage to last or how many years you have remaining on your mortgage and how much of your mortgage debt you have still to pay back. The longer the period of your mortgage repayments and the greater the proportion of your mortgage you have paid back already, the lower the monthly payments are likely to be.
In the end, your decision may not come down to choosing the lowest monthly repayments. You may prefer the peace of mind of a fixed rate mortgage even if the monthly repayments are slightly higher or you may like the idea of an offset mortgage. Alternatively, you may decide to stick with your own bank or own current mortgage provider even if better deals are available elsewhere simply because you trust them.
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