Interest rates

There are many different types of interest rate deals that a mortgage lender might offer. The main two are fixed and variable.

With a fixed rate, the rate of interest is worked out at the start of the mortgage and is fixed for a certain amount of time, usually between two to five years.

With a variable rate, the rate of interest moves up and down in line with a specific measure, for example the Bank of England base lending rate, or even at the lender's discretion.

 

Top tips

  • Fixed rate mortgages allow you to budget accurately as you'll always know what your payments will be. You're protected from any rises in general interest rates, but you'll not benefit from any falls.
  • Watch out for any penalties that might be applied both before and after your fixed rate deal comes to an end.

 

  • If the Bank of England reduces its base lending rate, then you would expect lenders to reduce their variable interest rates accordingly. However they are not required to do so and are not always quick to act. In contrast, they tend to act much more quickly if the Bank of England base rate rises!

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