Mortgage Rates Explained
So here is our second instalment of First Time Buyer Property Terms Crib sheet. If you missed the first one, please find it here including the terms; First Time Buyer - FTB, First Time Buyer Mortgage, FCA, Deposit, LTV and Equity.
Hold onto your hats, because in this thrilling instalment we’re covering rates… and no not your heart rate when you get the mortgage approved!
KFI
This stands for Key Fact Illustration. When you instruct a mortgage broker as part of their regulation they must send you over this document. It is a standard document which has exactly the same layout and information regardless of the broker or lender you speak to. Make sure you read and understand all the terms and rates included in it.
Your mortgage broker is there to help, don’t feel embarrassed to ask questions, they are trained to make sure you’re comfortable with the loan terms you are taking on. You can also ask your solicitor.
Fixed Rate
Most people fix their mortgage interest rates for a certain amount of time, normally 2, 3, 5 or 10 years (the term). It gives you the peace of mind that you will know your mortgage payment is not going to increase during that time.
Usually you will find that a fixed rate comes with a penalty to exit the rate (like a fixed rate on your electric and gas). This will be a percentage of your loan plus an exit fee; so, it’s important to make sure you’re comfortable with the time you are locking in.
You should really think about your plans over that time before committing (and don’t try and guess what the property market, inflation or the government will do… you’ll drive yourself crazy and you’ll never get it right anyway!).
Tracker Rate
This is a rate that you fix for a certain amount of time (term) at a level above the UK base rate. Often these rates have significantly lower exit fees which is a good thing if you’re moving into a period of your life where you might need to move home or circumstances are unknown.
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Base Rate
Although commercial banks are free to set their own interest rates for borrowing, the rates that they charge on loans (and offer on savings) tend to follow the base rate, which is set by the Bank of England.
The Bank of England uses the base rate to control things like inflation. When inflation goes up, you will find that the base rate follows, this is why it is important to make sure your mortgage is affordable even if the interest rate goes up.
Variable Rate
The variable rate is usually the rate your mortgage will move onto after your fixed term finishes, this is usually a lot higher than the rate you would have fixed at.
You should also take into consideration that the rate will be completely different to the rate you will be given by your mortgage advisor in the Key Facts Illustration. This is the rate as it stands when you take out the mortgage; in 2 or 5 years’ time it will be different depending on what the base rate is.
And we’re out of time again! Phew there’s so much to learn!
Next time we will go over the all-important people who will help you get your first home. We’re looking at; Estate Agents, Mortgage Advisors, Conveyancers and Underwriters.
If you want to find out more about how BOMADU can help you get on the property ladder earlier with our First-time buyer deposit loans and specialist current account just get in touch via our socials or visit https://bomadu.com
Take care, and never stop striving towards your goal of owning your own place ??