What counts as a good mortgage rate varies between applicants. A deal which seems expensive to you might be somebody else’s bargain. It all depends on your personal circumstances, and to some extent on the property you want to buy.
Because mortgage rates are calculated using a whole range of factors, it’s not possible for us to be more specific without knowing your situation. But it is important for you to understand your mortgage and have a firm grasp of the charges you’ll pay throughout its term. So here’s a very quick guide to the way mortgage interest charges are worked out.
What is Interest?
The best way to think of your mortgage interest is as the cost of borrowing the money to buy your home. The interest on every mortgage is made up of three different rates.
1. The Initial Rate
This is the interest rate you’ll be charged at the start of your mortgage. It’s usually a preferential rate given for a limited period as an incentive. When the introductory period is over, the interest on your mortgage will start being charged at the subsequent rate.
2. The Subsequent Rate
The name of this interest charge is pretty self-explanatory: it’s the rate you’ll be paying after the introductory period. This is most likely to be a standard variable rate (SVR), and it will fluctuate depending on the general trends in interest rates. SVR mortgages don’t usually come with a penalty for paying off your mortgage early or remortgaging with a different lender.
3. The APRC or The Overall Rate for Comparison
APRC is calculated using the initial and subsequent rates, plus any additional fees and charges. The overall rate therefore gives you an approximate idea of the total cost of your mortgage, although it’s worth bearing in mind that the subsequent rate is likely to change and this will affect the overall rate.
When comparing two or more mortgages, the one with the lower overall rate is usually your best bet. But once again, this may vary depending on your future plans and financial circumstances: if you like to move frequently, for example, you could be better off with a lower introductory rate. This is why it’s a good idea to discuss your options with our mortgage specialists.