Guide To Mortgage Interest Rates

What is the Bank of England base rate?
The Bank of England base rate is the official interest rate - it is reviewed on a monthly basis and set in order to try and influence inflation. Inflation is when the amount of money spent is growing faster than the volume of output produced. The base rate is the interest rate that the Bank of England lends to financial institutions and it affects the interest rates commercial banks and building societies set for their savers and borrowers.
A reduction in interest rates is better for borrowers – it reduces repayments on loans and mortgages. A rise in the rate does the opposite and is more attractive for savers, increasing the interest earned on savings and investments. Lowering or raising interest rates affects spending in the economy and therefore, inflation.

What is the London InterBank Offered Rate?
The London InterBank Offered Rate (LIBOR) is the rate at which banks lend unsecured amounts to one another. It is compiled by the British Bankers' Association (BBA) in conjunction with Reuters. It is reviwed on a daily basis and released to the market shortly after 11.00am each day. The LIBOR is the widely used "benchmark" or reference rate for short term interest rates.

What is a Standard Variable Rate?
A Standard Variable Rate (SVR) is a mortgage rate set by mortgage lenders that decides the interest rate. The lender bases its SVR on the Bank of England base rate (usually between 2 and 4 per cent higher), so when the base rate changes, the SVR will also change. The upside of an SVR mortgage is that if interest rates fall, so do mortgage repayments, but the obvious disadvantage is if rates rise, so do repayments, and there is no cap on how high the rates can rise.

What is a Base Rate Tracker?
Base rate tracker mortgages mirror exactly any changes to the Bank of England base rate, whereas normal variable-rate mortgages follow the lender's standard variable rate. Lenders can change their standard variable rate (SVR) regardless of changes to the base rate, although most broadly follow it, where as the Base Rate Tracker cannot be changed by the lender.

What is a Fixed Rate?
A fixed rate mortgage has a rate fixed at an agreed amount for a limited amount of time – usually between 2 and 10 years. The advantages of a fixed rate are that you know exactly how much your repayment will be each month, and if the base rate goes up, your repayments are not affected. The disadvantage is that if interest rates fall, you may end up paying a lot more than if you had been on a variable rate.

What is a Discounted Rate?
A discounted rate is based on the mortgage lender’s SVR and offers a discount of a certain percentage below the SVR for an initial period. After this period interest on the mortgage is charged at the lender’s SVR. Discount mortgages can offer good deals for those initial periods, with many mortgage providers offering large percentage discounts over their standard rates.

What is a Capped Rate?
Capped rate mortgages have a set upper value for their interest rates - they cannot go higher than this level, no matter what the changes in the mortgage lender’s standard variable rate (SVR). Due to this protection, capped rate mortgages tend to have less favourable rates than other types of mortgage that follow the SVR.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.