Interested in a Mortgage? Everything You Need to Know about Interest Rates and Loan Repayment
When it comes to acquiring a mortgage, there are a lot of factors involved. This is why it’s in your best interest to choose the proper mortgage deal – but you know that already. So, what are the factors which can influence your mortgage deal? Well, the interest rate is the foremost factor, but another factor includes how the loan will be repaid. Here’s what you need to know about mortgage interest rates and loan repayment.
The interest rate
The interest rate is one factor which will have a big impact on your future. After all, it is a responsibility you will need to handle for a good number of years, depending on the length of your mortgage. In regard to rates, you have a few choices: fixed, tracker, or discount. A fixed rate means that the rate of interest is set at a specific level during a certain period (usually around two to five years). During this specific period, the rate will not increase or change.
A tracker rate is where the rate is related to a different rate, which is often the base rate of the Bank of England. The tracker rate is often set above or below the base rate for a certain period. For instance, it can be 1% below or above the base rate of the B of E for a total of 5 years. But it can also move up and down during this time if the rate increases or decreases.
A discount rate is where the rate is set below your lender’s standard variable rate (SVR) for a set time, and during this period it can also move up and down according to changes in the SVR.
The loan repayment
You can choose between two types of mortgages: the repayment mortgage or the interest-only mortgage. A repayment mortgage is when the money you pay every month goes to the loan interest plus the repayment of the capital (the loan). When your mortgage deal ends, you will have been able to clear your debt entirely, as an experienced mortgage broker from Chelmsford such as those from Flagstone would confirm.
An interest-only mortgage is where you pay only the interest on the loan every month. Because of this, your monthly payments will be a lot lower, but there’s a catch – you will still have to figure out a way to pay the capital once your loan period ends.
Bear in mind that many lenders now avoid offering interest-only mortgages, and those who still offer them are much stricter with their requirements. If you are interested in acquiring such a mortgage, the loan you receive may be lower than that of a repayment mortgage, and you may also be asked to provide a specific plan for how you will pay back the capital.
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