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Mortgage interest rates
Mortgage Interest Rates: Understanding the Basics

Interest rates indicate the cost of borrowing money. This includes mortgage interest rates where you are borrowing money to finance the purchase of a property. After understanding the basics, you can start to compare mortgage interest rates in order to get the best deal.

Interest rates for borrowing

If you take out a loan at a 5% interest rate for a year, you will need to repay an extra 5% on top of the original capital you borrowed. Interest rates, including mortgage interest rates are usually quoted annually. However, make sure you check as this may not always be the case.

It may be easier to illustrate how this works by using a simple example. If you need to borrow $20,000 at an annual interest rate of 5%, this effectively means that at the end of that year, you will need to repay $20,000 + 5% = $21,000.

Mortgage interest rates

For most people, the largest loan they will have to take out is a mortgage or home loan to buy a home. It is therefore useful to understand the different types of mortgage interest rates on offer in order to compare interest rates.

Types of mortgage interest rate deals
The information given below may help you compare interest rates more knowledgeably:

Standard variable rate:

  • Your regular repayments will change with the lender's own mortgage rate, which is usually dependent on Federal Reserve‚Äôs base rate.

  • If mortgage interest rates climb up, so will your monthly repayments. If they fall, your repayments will decrease.
  • It is usually possible to switch lenders or make overpayments without being penalized, but read the small print.

  • Your lender may choose not to reduce, or may postpone the reduction of its variable rate even if the base rate falls.

Discounted interest rate:

  • You enjoy a discount on the lender's standard variable rate for a set period of time.

  • At the end of the deal, you usually switch over to the standard variable rate.

  • Make sure you can afford the increased repayments when the discount period ends.

  • You may not be able to make overpayments and pay off the loan early without being penalized.

  • Your lender may choose not to reduce, or may postpone the reduction of its variable rate even if the base rate falls.  

Fixed interest rate:

  • Your payments are set at a certain level for an agreed period.

  • At the end of that period, you will normally be moved to the standard variable rate.

Understanding mortgage interest rates is very important when considering what type of mortgage is best for you.

Check out the best mortgage providers

 
 
 
 
 
 
 
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