What is the Mortgage interest?
The interest rate on your mortgage is expressed as a percentage of your total loan balance, popularly known as mortgage interest rate. It's payable monthly along with the principal payment.
Types of mortgage interest rates
When it comes to calculating interest, there are three forms of mortgages available.
- Fixed rate mortgage
The interest rate on a fixed-rate mortgage remains same over a defined period of time (generally two to five years). This means you know exactly how much you'll be paying per month for the duration of the contract.
- Variable rate mortgage
A variable rate mortgage has an interest rate dependent on the lender's standard variable rate (SVR). This is subject to adjustment at the lender's discretion. For example, if your Variable mortgage rate is 3% + base rate, and currently base rate is 0.5%, that means you will pay 3.5% interest on your outstanding mortgage balance.
- Tracker Mortgage
The interest paid on tracker mortgages is determined by directly monitoring the Bank of England base rate, as the name implies. The rate would remain a certain percentage above the base rate, usually 0.5% to 2%.
Mortgage Interest Rate vs Annual Percentage Rate
|Mortgage interest Rate||Annual Percentage Rate|
|Expressed annually, it is the amount borrower of a loan must pay to the lender.||In addition to the interest rate, it also includes borrowing fees and other related costs. In summary, APR tells you what amout you are really paying.|
|It is usually smaller than your annual percentage amount as it's just one part of your APR.||It is normally higher than the mortgage interest rate as it includes other borrowing costs.|