Mortgage interest rates explained
Interest rates are set by mortgage lenders, however they may follow or be influenced by the base interest rate set by the Bank of England.
They determine how much you’ll be charged to borrow the money you’ve raised from your property, in addition to the loan repayment.
The difference between fixed and variable rates:
Interest rates can either be fixed or variable. With a fixed rate mortgage, the interest rate and your monthly payment stay the same for an agreed period of time. This is usually two, three, five or ten years, depending on your preference.
So, no matter what happens to the base rate that is set by the Bank of England, your monthly mortgage repayments will stay the same.
This type of interest rate is favoured by borrowers as it can help with monthly budgeting, as well as providing them with the peace of mind, knowing how much they’re going to pay each month.
Those on fixed rates are also protected against interest rate rises that may affect variable rate mortgages.
With variable rate mortgages, your monthly payments can vary, depending on the base rate its tracking. Although it might have a lower rate to begin with, it could go up if the interest rates increase.
A variable rate may therefore create challenges for people when it comes to monthly budgeting.
Having said that, you could benefit from having a variable rate if the base rate were to decreases.
What determines your interest rate?
The interest rate you pay depends on a several different factors, like how much you’re looking to borrow and your credit profile.
Most lenders will look at your credit score when deciding whether or not they qualify for a loan. If an applicant has a low credit score, it illustrates to lenders that they may not be able to keep up with their monthly payment, which makes them a greater financial risk. However all lenders have different criteria.
If you have previously been declined due to your credit profile or you don’t meet one lender’s criteria due to other personal circumstances, it doesn’t necessarily mean that every lender will turn you down.
Another factor that can impact your interest rate is the loan size, however this is subject to the lenders criteria.
If you are considering taking out a secured loan and would like to discuss your options with a qualified advisor, call us on the number at the top of this page or complete our ‘Contact Us’ form and we will call you back.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.