Mortgages Rates
Mortgage rates are affected by many factors, and because of this the rate changes frequently. Inflation, the state of the economy and the demand for mortgages will affect the rate. The exact mortgage the borrower chooses will also affect mortgage rates, and the period of time the mortgage is taken out for also changes the rate.
Mortgage Length
Mortgage rates depend on the length of the period the loan is taken for. The borrower can usually choose the period over which they will pay back the mortgage. The longer the loan lasts, the lower the mortgage rate will be. However, whilst the monthly payments are less the overall amount of interest paid will be higher the longer the loan lasts.
Commercial Mortgages
Mortgage rates are higher for businesses properties than residential homes. The rates are higher as generally these mortgages are seen as higher risks for the lender than residential mortgages.
Mortgage Deposit
Lenders usually charge higher mortgage rates the lower the deposit is. A borrower should aim to have a deposit of at least 10% of the cost of the property; otherwise high lending charges may apply. These lending charges protect the lender if the borrower falls behind on payments.
Mortgage Types
The exact mortgage rate will depend upon the type of mortgage the borrower has chosen. Financial advice should be sought before deciding upon the mortgage type, as well as the period the mortgage will be paid over. Mortgage comparison websites can be useful to compare mortgage rates. Different mortgage types include fixed rate, capped rate and tracker mortgages.
Fixed Rate Mortgages
Fixed rate mortgages have a mortgage rate that is static for a set period of time. This is most commonly for a period of about 2-5 years. The interest rate on these mortgages remains the same regardless of how other mortgage rates are changing. However, once the set period has passed mortgage rates often rise dramatically.
Capped Rate Mortgages
Capped rate mortgages are not dissimilar to fixed rate mortgages; however they allow the mortgage rate to lower if interest rates are dropping. In a fixed rate mortgage the borrower will pay the amount that was agreed with the mortgage lender, regardless of whether the interest rate drops lower. Capped rate mortgages never rise above the mortgage rate agreed, but can become cheaper if interest rates drop.
Tracker Mortgages
Mortgage rates in tracker mortgages are tied to a base interest rate. The base interest rate is usually set by the Bank of England. Mortgage rates are higher than the base interest rate, and in a tracker mortgage the rate always stays a certain percentage above the base rate.
Tracker mortgages are often advantageous because if base interest rates drop the tracker mortgage rate will drop straight away. Often a mortgage company will delay dropping their mortgage rates even if the interest rate has dropped, whereas a borrower on a tracker rate mortgage will benefit immediately.