A mortgage rate is neither’good ‘nor ‘bad’ it depends entirely on the circumstance of the applicant. There are several factors that determine how good the rate is – and these change from person to person.
A mortgage rate that is good for you, may not be good for someone else, even if on the surface your situations appear to be the same. So, it is important to not compare yourself to others, and instead seek independent financial advice.
Mortgage rate & offer
Interest rates are the price at which you can borrow money from a lender. And within every mortgage offer there are three different types of rates:
Initial Rate: This is the amount charged by a lender to a borrower at the beginning of the mortgage. In most cases this is often a promotional rate. This means it is a rate charged only for a short-term period before it changes to the subsequent rate.
Subsequent Rate: This is the rate that you pay once your promotional period has come to an end. If you’re applying for a mortgage now, you may have come across the phrase ‘SVR’. Also known as Standard Variable Rate, this is the standard rate of your mortgage lender.
If you take out a mortgage the SVR releases you from any early repayment charge that you would have to pay if you were to remortgage during the initial rate period.
Overall Rate for Comparison/APR: This is the overall rate you get if you combine the initial rate with the subsequent rate. APR also includes any fees that may have been added.
For most borrowers, having a lower overall rate is the most favourable option. This means that you will pay less interest over the entire life of your mortgage.
But it is worth noting that there are circumstances where you may benefit from a mortgage offer with a lower initial rate. Although this this will mean you have bigger repayments further down the line, some borrowers find this suits their circumstances.
The most common of these circumstances are if an imminent maternity leave reduces income in the short term, or if salary is expected to increase significantly after several years.
We can talk to you about all types of mortgages and rates and we’d love to hear from you.
Have you read our blog about fixed versus variable interest mortgages?