How mortgage rates are determined

When buying a property, it is likely that you’ll need a mortgage to complete the transaction. However, the value of the mortgage isn’t the only factor that you need to consider. The mortgage rate is an incredibly important element, which is why a deeper understanding of it is so vital.

The mortgage rate is essentially the interest rate that is applied to the loan on your property. As such, it will have a telling impact on the overall cost of your mortgage. Here are some of the issues that will dictate the rate you are due to pay.

#1. Value of Mortgage & Deposit

Your mortgage rate is often linked to the Loan to Value of the property you are mortgaging. Loan to value (LTV) simply means the amount of loan you are taking out compared to the value of the property the loan is on. Your mortgage rates will generally go down as the LTV goes down. In other words, the less you borrow against the amount you can pay yourself means you will have a better mortgage rate. In summary the bigger a deposit you can get together the lower your mortgage rate will be.

#2. Credit Scores

Credit scores influence the interest rates on any loan, and loans generally don’t come any bigger than your mortgage. Applicants with good credit histories are far more likely to be rewarded with a lower mortgage rate.

So, if you are thinking about applying for a mortgage in the near future, it’s worth finding out your credit score and making the necessary changes to boost it.

#3. Loan Type

Homebuyers can take advantage of several mortgage types. Mortgages generally fall into one of two types: fixed-rate or variable rate. Variable rate mortgages then come in several varieties: standard variable rate, discount mortgages, tracker mortgages, capped rate mortgages, and offset mortgages. The type of mortgage selected will inevitably hold a huge influence on the mortgage rate, which is why it is important to make an informed choice.

#4. The Base Rate

The Bank of England base rate impacts variable rate mortgage rates across the board, the base rate was increased from 0.5% to 0.75% in November 2018, which was only the second increase in a decade.

Sadly, it wasn’t great news for homebuyers as those on SVRs, for example, are likely to have seen their mortgage rates increase by 0.25% too.

#5. The Economic Climate

In addition to the individual factors, the mortgage rates offered may be influenced by the wider economic climate. After all, lenders have to accept the impact of issues like Brexit, along with the general market changes.

Timing can have a major impact on the mortgage rates available. Keeping abreast of the latest developments is essential at all times. Alternatively, you can get in touch with a mortgage specialist who can help you decide what mortgage works best for you and how to get the best interest rates for your personal circumstances. An independent mortgage advisor will give you impartial advice and can show you a wide range of mortgage options as they are not tied to specific lenders.

If you need help with any type of mortgage, Pure Mortgage & Protection provide a comprehensive range of services to ensure you get the very best outcome.

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