Looking for the best interest rate for your mortgage? Here we show you what factors affect mortgage rates.
Mortgage rates are affected by:
- the Base Rate
- LIBOR (London Interbank Offered Rate – the average interest rate banks charge when lending money to each other)
- the number of repossessions
- the unemployment rate
These factors will affect what headline mortgage interest rate you see advertised, but the average mortgage rates you are actually offered will also depend on what percentage deposit you have; the smaller the percentage of the total house price you can put down as a deposit, the higher the interest rate will be. Different types of mortgages also have different mortgage rates.
Fixed rate mortgages
With a fixed rate mortgage you pay a set rate for a certain period of time, usually two or five years. You get the security of knowing exactly what your repayments will be, but fixed mortgages usually come at a higher rate of interest. Also, the longer the fixed period, the higher the rate will be.
Standard variable mortgages
Standard variable mortgages go up and down over time, according to the standard variable rate set by the lender. This means that your mortgage interest rate and repayments can go up and down, depending on the economic climate.
Tracker mortgages follow the Base Rate, usually at a set percentage above it (although in the past, trackers which track below the Base Rate were available). for this reason, trackers are something of a gamble – you can’t be sure what your mortgage repayments will be.
With an offset mortgage, your mortgage and savings account are combined into one single account. This means that the money you have in your savings account can be counted as an overpayment towards your mortgage. As with a standard mortgage, you can get variable, fixed and tracker rate offset mortgages. They can have a higher interest rate, but this extra interest might be cancelled out by the savings you can make over time.