Most loans have an interest rate - a mortgage interest rate will be charged on top of the amount you owe to your lender. It is useful to know about mortgage interest rates, as this understanding can help you to get the best deal when it comes to finding a mortgage deal for you.

Even the smallest percentage difference can add up to thousands of pounds over the long term. In this post, we are going to explain mortgage interest rates so you’re equipped to make the right decision, so read on to learn more.

Mortgage Interest Rates

Your mortgage interest rate is essentially a percentage of the money you are borrowing, paid back in your monthly mortgage payments. 

Different mortgage options will have different interest rates - and this can depend on a range of factors (e.g your credit history). The amount you owe throughout your loan term will equal the amount you have initially borrowed. This is known as the capital or principal, and that also has additional interest on top.

How Do Mortgage Interest Rates Work?

Your mortgage interest rate will be calculated as a percentage of the amount you borrow. It will largely depend on the type of mortgage you take out.

Each monthly mortgage payment reduces your loan and builds your share of equity in your home, and the rest goes towards interest fees.

Your mortgage interest rate is calculated on your remaining balance each month. This decreases over time, and more money will go toward your capital instead.

In an interest-only mortgage, you will repay the capital at the end of the term instead of paying towards it monthly. This is common with buy-to-let mortgages.

A Good Mortgage Interest Rate

Although it may be the most appealing, the lowest interest rate on a mortgage deal may not be the right deal for you - there are lots of factors to consider when finding the right mortgage deal. This is why it is always a good idea to get advice from a mortgage broker who will help you choose the perfect deal for you based on your circumstances and financial situation.

Doing research into similar mortgage products on the market is a good way to determine whether a deal is the right one for you. Remember that mortgage rates can change depending on the economic climate and the time you take out your mortgage.

Fixed Mortgage Rate

Taking out a fixed mortgage rate means the interest you pay will stay the same for the length of your mortgage deal. It won’t be affected by whatever happens to interest rates on the market.

Once your fixed rate period comes to an end, you will move onto a standard variable rate (SVR) unless you remortgage. The SVR is likely to be significantly higher than the fixed mortgage rate you were offered, which is why many choose to remortgage at this point.

Risks of Fixed Mortgages

Lots of people favour a fixed-rate mortgage to give themselves some long-term security. However, if rates remain competitive, or fall lower, you could end up paying more.

On the other hand, you can also save a lot of money with fixed term rates, as if rates do rise then your deal will be secure.

Getting the Best Mortgage Now

Many mortgage advisors would agree that now is a good time to get a fixed mortgage rate. Due to the COVID-19 pandemic and Help-to-Buy schemes, the housing market has been affected - which means it is a good time to fix your mortgage as the market won’t stay competitive forever.

Speak to us at LTC Mortgages - we are the experts that can find you the best mortgage deal based on your circumstances. With over 15 years of experience in the business, we are dedicated to helping you. Whatever type of mortgage you are looking for, with our network we have access to the best deals. We can get you the perfect mortgage offer with the interest rates to suit you.