Mortgage interest rates

What do we mean by mortgage interest rate? 

When you take out a mortgage it’s important to understand interest rates and how they impact you. 

 

Over the course of your mortgage, there may be times when higher interest rates mean your monthly repayments are higher.  

 

When you take out a mortgage you need to consider if you can afford to pay more longer term if interest rates were to increase. 

 

A mortgage interest rate is the amount you are charged by a provider to ‘borrow’ money from them.  

Why do interest rates differ? 

You may see that different mortgage products offer different interest rates. This is usually because the terms between mortgage products differ, for example, the length of time or the Loan to Value (LTV). 

 

Over time you may also see that interest rates go up and down, this is impacted by the Bank of England base rate. 

Loan-to-value is the percentage of your home's total value that you borrow as a mortgage.     

What is an initial rate? 

An initial rate is the amount of interest you will pay at the beginning of your loan for an introductory period.  

 

Your initial rate may last several months or years, depending on the mortgage deal you choose. 

 

Once the period ends you will have the option to take out a new mortgage deal. The interest rate on your new deal could be higher or lower than your initial rate. 

 

Say you took out a £200,000 mortgage for a term of 25 years, fixing it at a 4.93% interest rate for two years, your monthly payments would be £1065. 

 

After two years, you will be moved to the standard variable rate (SVR) unless you switch to a new deal. 

 

If the SVR is higher than the initial rate your mortgage repayment, your monthly payments would increase. For example, if the SVR is 5.95%, your monthly payments would increase to £1,192. 

What is a standard variable rate? 

Standard variable rate (SVR) is the interest rate you will be automatically switched to when your initial fixed period deal ends.  

 

Each lender sets their own SVR. As it is a variable rate, this can change subject to the lenders discretion. And those changes are usually influenced by changes to the Bank of England base rate.  

 

When you have an SVR mortgage your mortgage payments can go up or down each month, depending on the rate.  

What do you mean by ‘overall cost for comparison (APRC)’? 

Annual Percentage Rate of Charge (APRC) is the total cost of the mortgage over it's lifetime expressed as a percentage. It combines fees, the initial rate and the standard variable rate to give you an idea of the overall interest you will need to pay back on a mortgage.   

 

You can use the APRC to compare mortgages as a whole - and not just by the initial introductory lower rate.