Mortgage
Interest Rates Explained
Interest Only Mortgages
When you receive a home loan the mortgage lender charges an interest
rate for the lending service. So they provide you with the finances
to buy a home and in return you pay them an interest rate.
With an interest only mortgage you pay your lender only the interest
rate back and not the actual capital they have lent you. The capital
is only paid at the end of the mortgage term. In order to raise
this capital you will have to invest elsewhere, until you have accumulated
enough to repay the capital. This investment fund usually comes
in one of three forms:
- An ISA (individual
savings plan)
- A pension
- An endowment
The advantage of this type of mortgage is that your investment
could potentially become larger than your mortgage meaning you could
either pay your mortgage off early or receive a lump sum at the
end of the mortgage term. With an interest only mortgage you can
also invest your funds tax efficiently and therefore save money
in the long-term.
Types of Mortgage Interest rate - important points
There are several different types of interest rate,
however the most important one to understand is the standard
variable rate (SVR). This is the rate lenders will charge
you as standard, once any introductory discount rate periods
have ended. If the SVR is high and you are tied into the
sceme with an overhanging redemption penalty you could stand
to lose all that yo have gained from the introductory discount.
So if you are considering an interest only mortgage such
as a fixed rate or capped rate consider these points carefully
before hand:
- What
is the lenders SVR?
- Are
you tied in? - is there an overhanging redemption penalty?
if there are any terms you do not know the full meaning of please
refer to the Mortgage Glossary in the left menu.
Mortgage interest rates
Variable
interest rate
Fixed
interest rate
Discounted
interest rate
Capped
interest rate
Base
rate tracker
Other types of mortgage
Cash-back
mortgage
Flexible
mortgage
Current
account mortgage
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