Bank of England Base Rate - Interest rate that affects mortgages.
The Base rate is set by the Bank of England and can alter quite regularly. The Bank of England's Monetary Policy Committee meets monthly, they announce any changes to the rate. This is then the standard base interest rate used for most financial products including UK Mortgages. Mortgage lenders have their own interest rate which they charge for lending money, this interest rate is then added onto the Standard Base Rate. Any change in the standard base rate will affect almost every mortgage and loan and how much each loan is affected depends on the product taken out by the borrower.
- Capped Rate Mortgage it might affect repayments, a rise or fall will be dependant on the direction of change in the base rate and if the mortgage lender passes the change on to the customer.
In the event of a capital and interest mortgage, the customer pays of both the interest on the mortgage loan as well as the capital, so repayments will be affected. - Discounted Rate Mortgages are affected as the interest rate fluctuates however for a limited time the consumer will have a reduction on the rate according to their agreement. When this agreement expires the consumer can shop around for a new mortgage or negotiate a new deal.
- Endowment Mortgages are where repayments to the mortgage lender covers the interest the lender charges on the money borrowed but also a part is invested to repay the capital. Repayments on the mortgage are affected by any fluctuations in the interest rate.
- Fixed Rate Mortgage the interest rate is set for the entire duration of the mortgage loan. Fluctuations are not going to affect mortgage repayments during this period.
- Flexible Rate Mortgage interest rate fluctuations may affect repayments, a rise or fall will be dependant on the direction of change in the base rate and if the mortgage lender passes the change on to the customer.
- Interest Only Mortgage is where the interest only is paid off by the consumer, this results in any changes in the base rate having an effect on these types of mortgages.
- Repayment Mortgage both the capital and the interest is paid back over the agreed term so again repayments will be affected by any rate changes.
- Tracker Rate Mortgage the interest rate changes in accordance with any fluctuations whether it be up or down.
- Variable Rate Mortgage repayments could be affected by a base rate change if the lender passes on the change to the consumer.
Base Rate Example - Variable Rate Mortgage UK
The interest rate affects this type of mortgage and any changes in base rate can be passed on to the consumer by the lender. If the base rate goes down dramatically then the borrower stands to benefit as interest charged will reduce. If the interest rate rises considerably then the consumer will have to pay more for their mortgage. The Bank Of England's base rate has varied considerably in the past but should it drop the consumer can save money by opting for a variable rate mortgage.
Finance Information.
Buying a home is a big investment and you should shop around, take advice on what the best type of mortgage is for you. There are many different mortgages and mortgage products to be found. You can save time by finding out about and even applying for loans and mortgages online. Take time to make the right choice now for a better future. Always make sure you are aware of what your monthly payments are going to be and understand how a base rate increase would affect your mortgage or loan payments.