Interest Rates

N

Nemo

Guest
I am totally confused with regard to the different types of mortgage rates. Can you tell me the difference between them?

Also, this may be impossible to predict, but can you average how many times a year an interest rate may change and the likely variance on percentage?

Thanks,

Nemo.
 
There are basically two or three types of rates:
  • [Standard] variable rates: these fluctuate from time to time normally in response to ECB rate changes but the lender doesn't guarantee how much of ECB rate increases or decreases they will pass on and when
  • Tracker [variable] rates: these are simply variable rates with a guarantee that the margin will be a fixed (or maximum) amount. For example ECB + 1%. This means that when the ECB rate changes the mortgage rate will also change by the full amount and immediately (or within a specified period of time)
  • Fixed rates: in this case the rate is fixed for a specified period of time meaning that the mortgage repayments remain predictable and fixed over that period. Fixed rates should really only be chosen by those who cannot afford fluctuating repayments that variable rates imply. Don't chose fixed in an attempt to time the market and save money over a competitive variable/tracker rate as you will most likely pay a premium instead.
Some lenders also offer special discounts for the first year or so for new customers but you should largely ignore these and not let them influence your borrowing decision unduly. You need instead to look at the prospective long term cost of the mortgage over the full term rather than just the year one cost. Some lenders who offer attractive year one discounts then revert to uncompetitive rates from year two onwards.

It's impossible to tell with any accuracy how interest rates will perform in the future. The ECB meets every quarter (or month?) to decide on what, if any, changes it will make to interest rates. There is lots of speculation about how interest rates will go in the future but ultimately nobody knows. In recent years when they have changed interest rates they do so by 0.25% at a time but again this is not guaranteed. See here.

Does that help at all?
 
Yes thank you so much ClubMan. I am hoping the Broker will make some calculations based on all three rates and then I will have a better overview of the best option for me.

Thanks again,

Nemo.
 
What broker? Make sure whoever you talk to is independent and not a tied agent of one or a small number of lenders. Shop around as widely as possible for the best deal on the mortgage and other related stuff like mortgage protection life assurance, home insurance etc.
 
ClubMan said:
What broker? Make sure whoever you talk to is independent and not a tied agent of one or a small number of lenders. Shop around as widely as possible for the best deal on the mortgage and other related stuff like mortgage protection life assurance, home insurance etc.
Click to expand...

And remember no broker deals with every lender.
 
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