What is a good mortgage rate?
If you’re looking for a loan to buy a house, you’ve probably seen the term ‘good mortgage rate’ bandied around quite a bit. But what actually is a good mortgage rate? We’re revealing all in this blog.
Whether a mortgage rate is good or not depends on a number of factors. When a lender considers what they are prepared to offer you, they will look at your financial situation, including your credit score, income, savings and how much of a deposit you’re prepared to pay. It all boils down to whether the lender feels you can comfortably afford the rates they have to offer. Lenders will also evaluate the level of risk. The more favourable your current and historic financial history, the better!
The different types of mortgage can also play a part in the mortgage rate. Standard Variable Rates for instance are known for being a more expensive mortgage option. Equity release also typically has higher interest rates.
How is your mortgage interest rate calculated?
Your mortgage interest rate determines how much your loan will grow each month. It is considered an additional charge that is added onto the value of your loan and is calculated as a percentage of your mortgage value. The higher the interest rate, the higher your monthly repayments.
How do you pay interest on a mortgage?
In most cases interest is paid in monthly instalments. Most borrowers repay a set amount of their mortgage each month plus interest on top of that. However, if you have an interest-only mortgage, you’ll only pay interest each month. You will only be expected to pay off the value of the loan at the end of your mortgage term.
So, what is a good interest or mortgage rate?
Most variable rate mortgages follow the Bank of England base rate and usually add between 2 – 5% on top. If the base rate changes, so will your interest rate. This means even if you start out with a favourable mortgage rate, if the base rate goes up your monthly interest payments will too. But generally speaking, for a variable rate mortgage, a good mortgage rate will be one that adds the lower percentage on top of the base rate.
As for fixed mortgage rates, these can be more expensive but the security of knowing exactly how much you’ll spend each month is a huge benefit. It’s worth shopping around for a good fixed-rate mortgage deal.
When it comes to finding a good mortgage rate it can be difficult to navigate this ever-changing market. That’s why we recommend consulting a mortgage advisor as they will be able to bring expert advice to the table.
If you’re looking for a mortgage broker in Northampton, Derngate Wealth Management can help you find a great mortgage rate that works for you. Contact us today to enquire about your free consultation.