Mortgage Interest Rates

Bank interest rates

Mortgage interest rates today are at an all-time low due to the current recession in the economy. While we see people scrambling to buy houses while interest rates are at a historical low, what does this mean for them in the years to come? While the latest Bank of England’s base rate is holding steady at 0.50%, there is no guarantee that interest rates will remain this low in the future. In fact, the most recent forecast from the BBC news is for them to rise in the near future to stifle large inflation increase.

Types of lending interest rates

There are several types of loan rates to choose from:

  • Fixed Rates: The house buyer pays a fixed rate of interest for a certain amount of time, at which point the mortgage will switch to the lender’s standard variable rate (SVR). This means your house payment will be the same each month, but you will not benefit from the fluctuation in interest rates, and this option may be more expensive than others. There are penalty fees for leaving this agreement earlier than the agreed upon time.
  • Standard Variable Rates (SVR): This type of interest fluctuates according to the lender’s standard interest rate. This is an excellent choice for someone who wants the ability to use a different bank in the future or to pay more money back earlier, without paying penalty fees. However, fluctuating interest rates may cause some house buyers to struggle with making their house payment if they find themselves in a difficult financial situation.
  • Standard Variable Rates (SVR) with Cashback: This type of rate is similar to the usual SVR, except the house buyer receives a lump sum of money in addition to a house, and is committed to that variable rate for a certain amount of time.
  • Discounted Rates: Mortgage interest rates begin at a low, introductory rate and are later increased to the lender’s SVR after a specific amount of time. The discounted rate will fluctuate according to the lender’s SVR, as well as the Bank of England’s base rate during the introductory period, even though it is still a lower rate. There are penalties assessed for leaving this agreement early.
  • Trackers: This type of interest rate is based on the Bank of England’s base rate and is an excellent option for someone who appreciates low interest rates, but can afford higher payments when those mortgage rates increase.
  • Capped Rates: This is another type of variable interest rate that has a ceiling, which means the house payment will never go past a certain amount. Sometimes, this will also include a collar, which is the lowest rate that the house buyer will pay. This could hurt the buyer if the interest rates fall below the collar.

Selecting between the various home loan rate options

When buying a house, choosing the best option can be a stressful and confusing experience. To make receive the best deal, research various lenders and learn the different mortgage interest rates they offer for buying a house. Take into consideration that your house payment will likely change over time. Figure out how much you can afford for a house payment, as well as the increases your mortgage could face, so you can better determine if you will be able to afford it. Using an online mortgage calculator is helpful in this situation.

Some potential homeowners choose the best deal without realising how much money this could actually cost them before their house is paid off completely. Get all the facts before deciding which mortgage rate is the best choice for you.