What are interest rates?
The Bank of England is in control of the ‘Bank Rate,’ which is more commonly known as interest rate. An interest rate indicated the cost of borrowing or saving. As a borrower, interest rates will indicate the percentage you are being charged for borrowing money. As a saver, interest rates show the percentage that your money will earn. It is important to keep an eye on interest rates, in order to help you make smart, financial decisions.
Why are they rising?
The Bank of England uses interest rates as a tool to control inflation. In the current financial situation, interest rates have increased, in an attempt to decrease the rate of inflation. A low, and stable interest rate is essential to a healthy economy. Therefore if interest rates are not moderated, there could be negative economic implications in the future.
How do rising interest rates affect mortgages?
There are two main types of interest rates in the UK. These are Fixed-rate mortgages and variable mortgages. Fixed-rate mortgages have a set interest rate throughout the agreed duration – no matter the changes in the economy, you will always pay the same monthly amount. With a variable mortgage, the interest rate changes, meaning that monthly payments can go up and down. Therefore, the only people that will be affected by the rising interest rates, are those with variable mortgages. There are three variable-rate mortgages; tracker mortgages, discount mortgages and standard variable-rate mortgages. The only mortgage that will be affected by the changing interest rates is the tracker mortgage. Tracker Mortgages follow a base rate. This base rate is usually the Bank of England’s interest rate. If the rate is low, or likely to be low, Tracker Mortgages can be very appealing. However, whilst interest rates are high – the amount that you’ll need to pay back each month will increase. Therefore, as the current rate of inflation increases, so will your mortgage payments. If you are concerned about your mortgage payments, contact your mortgage broker, or solicitor, for more financial advice. See 8 Ways to Make Your Home More Desirable – Energy Efficiency on other ways to save money during a financial crisis.
