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The current mortgage rates that you might expect from your
mortgage will be dependent on a number of factors. No one
mortgage is the same and this will be most evident in the
rate that you obtain from the lender. Depending on which
type of mortgage product you have taken out can have a
significant impact on your current mortgage rate. A standard
variable rate mortgage will have an interest rate that is
roughly in line with the base rate of inflation within one
to two percentage points. However a fixed rate mortgage could be significantly different, if a fixed rate mortgage had been taken out when interest rates were lower than the
current mortgage rate that you could expect to be receiving
would be a lower rate and ultimately a very good deal on
your mortgage payments per month. However if you had taken
out a fixed rate mortgage when the interest rates were
higher then you would be paying more out per month on your
current deal than maybe if you were on a variable rate
mortgage.
The rate of interest that is paid on a standard variable
rate mortgage usually is around one to two percent higher
than the underlying base rate of interest. The lender adds
the margin onto the current mortgage rate and the variable
interest rates are then adjusted when the bank of England
changes the base rate of interest. It does not always apply
though that if the base rate of interest increases that the
mortgage lenders will automatically increase their current
mortgage rate as well. If you have a variable rate mortgage
then it is most likely that you will have experienced a
small decrease in the current mortgage rate. Over the last
four months the base rate of interest has dropped from 5.75%
to 5.25% and often this drop will be passed on and your
mortgage interest rate payments will be reduced. This is
only relative though as February 2007 the interest rates
were also at 5.25% therefore your repayments on your
mortgage are most likely to be the same as one year ago.
Predicting the rate of interest that will apply to your
mortgage is very hard and no one exactly knows what the
future holds in the economy and with the interest rates.
Many people will opt to protect themselves from these
changes by having a fixed rate mortgage as discussed
previously or even a capped mortgage. A capped mortgage acts
in the interest of the borrower should interest rates rise
to a significantly higher level than the current mortgage
rate. There is a ceiling or cap on the highest interest rate
that can be charged even if the actual rates rise above this
level. The initial interest rate charged will be very low
and be well under the current mortgage rate that people will
already be receiving when using the same product. Something
to be aware of is that some capped rate mortgages also have
what is known as a collar, this is a bottom line rate of
interest that they cannot fall below even if the main
interest rates are below this point.
If you are looking to move into the property market then you
will be interested in the current mortgage rate of many
different products so you can make a good choice. The best
way to check out what is happening within the mortgage
market is to do some research online and make comparisons
between similar types of mortgages like fixed rate
mortgage, capped mortgage etc. There are plenty of
comparison tools that you can utilise and many will take
into account other factors such as any early repayment
charges, arrangement fees and other charges. If you are
looking at ways to pay into your mortgage and pay off early
and thus reduce the amount of interest you may pay then you
could be interested in what is known as an offset mortgage.
The principle behind this type of mortgage is relatively
straightforward and can reduce your current mortgage rate
over the loan quite considerably. The basics behind them are
too offset the mortgage debt by paying savings into the
mortgage account, this in turn will reduce the mortgage and
interest owed, and will reduce the term of the mortgage
quite considerably. When interest rates are lower savings
have less of a value due to you not getting a good rate of
interest payable per annum, therefore it makes more sense to
make these savings work in order to reduce the mortgage.
Whilst savings can be added to reduce the amount paid over
the long term it is also possible to add existing loans and
credit cards and pay them off at a lower rate of interest.
Any additional loans will still remain unsecured and so
there is no risk in loosing your home if repayments are not
met.
If the current mortgage rate rises and you are tied into a
variable rate mortgage then your monthly payments will
increase, with this in mind when you first arrange your
mortgage you should take into account fixed rate mortgage so the interest rates rises
do not effect you. Looking at trends over the last
five years show that interest rates have increased by two
percent from 3.75% to a high of 5.75%, with this in mind the
repayments on your mortgage would have increased and your
current mortgage rate will likely be higher than when you
first took your mortgage out five years ago. This highlights
the problem with variable rate mortgages and the problems
that people can encounter. In the early 1990s the interest
rates hit 15% due to the economic uncertainty, this caused a
house price crash with many people entering negative equity
and unable to repay their mortgages. Just because the
current mortgage rate is relatively low this doesn’t mean
that this will be the case for the duration of your mortgage
and the markets are very unpredictable. Take the time out to
carefully asses your finances and be sure that if the
current mortgage rate was to increase you are able to absorb
the additional cost in your monthly expenditure. |
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