Interest only mortgage rates
When choosing an interest only mortgage it is important to consider the financial implications that different interest rates can have on the long-term cost of your loan. Not all interest only mortgage products are the same, mortgage lenders having diversified their products and interest rates to meet a range of borrowing situations. The interest rates on a given selection of mainstream mortgage products may in fact vary by as much as 3%, if not more, while the interest rates for people with a poor credit history can be up to 5% above the base interest rate.
A difference of just 1% in the interest rate when applied to a mortgage of £100,000 over 25 years translates into a loss (or gain) of £24,900 across the lifetime of the interest only loan. It therefore pays big time to shop around before putting pen to paper for an interest only mortgage to be sure that you've got the best deal for your circumstances.
Here is a summary of the three main types of interest only mortgages that you'll be able to choose from, along with an evaluation of their interest rates: -
Fixed Rate Interest Only Mortgage - Fixed rate interest only mortgages offer the best deal when the economic climate is unstable. They allow borrowers to fix the interest only mortgage rates at the same level for a period of between 1 - 7 years. A one-year fixed interest only mortgage offers the most competitive interest only mortgage rates, with some products offering interest rates that are very close to the base rate. Fixed rates products with a term of 5 - 7 years generally attract higher interest only mortgage rates, but offer longer term stability as should the base interest rate climb during the term of the mortgage the borrower will be unaffected. Rates on fixed products currently vary between 4.5% and 5.5%.
Standard Variable Interest Only Mortgage - This type of interest only mortgage is a mortgage provider's basic mortgage product. Interest only mortgage rates are set by the mortgage provider and may rise or fall in relation to fluctuations in the base interest rate. Typical standard variable rates are currently around 6.75%.
Capped Rate Interest Only Mortgage - Capped rate products are derived from the standard variable mortgage product. But, unlike a standard variable rates product the fluctuations in the interest only mortgage rates are capped at a certain interest rate level above and below the standard variable rate. This allows for some movement in the interest only mortgage rates, but if there is a large increase (or decrease) then the interest rates on the capped product will only rise or fall to the capped limit.