What Interest Rates are available to me?
Below we have outlined a number of interest rates options. Note: You should always check with your bank or mortgage provider to see what rates or types of interest rates they offer.
Fixed Interest Rate | Variable Interest Rate | Discount Rate
Fixed Interest Rate
Fixed Interest Rate fix your monthly interest payments at a specified level for an agreed period of time such as 1, 3, 5 or 10 years. When the fixed rate period has ended, your monthly payments change to match your mortgage provider's standard variable rate.
Advantages: You know exactly what your mortgage will cost you in the early years. This can be useful with household budgeting. It also protects against increases in your mortgage repayments if interests rates increase over the fixed term of the mortgage.
Disadvantages: If the interest rates lower in the European Central Bank you will not avail of the savings as you will still be paying the interest rate that you fixed when you set up your mortgage.
Variable Interest Rate
The interest rate is set according to the lender's standard variable rate. With a variable interest rate mortgage your interest payments are likely to rise or fall every time there is a change in the European Central Bank base rate.
Advantages: There are generally no penalties for early redemption on these loans.
Disadvantages: Interest rate movements can be very unpredictable. This makes it difficult to plan your finances into the future, and the costs of your mortgage may increase rapidly if interest rates go up. Also, lenders do not always pass on the full change in the base rate. This can sometimes be to your advantage, but often not.
Discount Rate
This type of loan helps reduce your expenses in the early years of the mortgage by setting your interest rate at a few points below the lender's standard variable rate. Your interest payments may still fluctuate, but the differential between your rate and the lender's standard variable rate remains constant.
Advantages: The discount reduces the initial cost of the mortgage repayments, freeing up money for other expenses, such as new furniture, when you need it most.
Disadvantages: When the discount period comes to an end, the loan shifts back to the standard variable rate. This could mean a big jump in what you pay. There may be early redemption penalties, which will reduce their benefit if you move house early on.
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