Interest rates
Introduction To Mortgage Interest Rates
The concept of a mortgage is simple: First you borrow a
large lump sum of money and then pay it back over a long
period of time, with the property you are using the money
to buy usually acting as security against you defaulting
on the loan.
This simple concept is complicated by the existence of
a vast number of different mortgages on the market from
hundreds of different lenders. Some may be almost identical
to a whole host of others, while many will have near-unique
features that only appeal to a very specialised group of
customers.
Perhaps the most important feature of any mortgage is the
interest rate that you pay on the money that has been lent
to you - it's certainly the first thing that most people
look at when assessing the suitability of any given mortgage
product.
The prevailing level of interest charged by lenders depends
largely on the Bank of England base rate at that particular
time. However, aside from helping to determine lending rates,
the Bank of England base rate is actively used by the Governor
of the Bank of England and the Monetary Policy Committee
to manage the economy, meaning that there are fairly frequent
changes in interest rate, with the knock on effect that
mortgage interest rates can also vary considerably from
month to month or year to year.
Even with the fluctuations that occur, if all lending rates
tracked the base rate, choosing a mortgage would be a lot
simpler. There are some simple deals around, which are very
easy to understand. But as we, the customer get more and
more sophisticated, so too does the level of complexity
that lenders introduce to their products.
As a result, picking your way through the complex range
of discounts, fixed rates, caps, collars, deferred interest
and variable rates can be incredibly confusing. For the
inexperienced, it can be very hard to tell a dog deal from
a good one. There are a lot of false friends amongst mortgage
products - seemingly fantastic short-term deals may not
be bargain at all in the longer term.
Read on to find out more about the main types of interest
rate available in the UK mortgage market and hopefully arm
yourself with sufficient knowledge to pick your way through
the potential pitfalls…
