April 20, 2024

What Is A Mortgage?

When you pay back your mortgage, your pay back the capital (the agreed amount you borrowed) and the interest (the charge made by the lender on the amount you owe). The Bank of England sets a Bank Rate – often known as the base rate – to help keep inflation under control.

This is the interest rate at which the Bank of England lends money to domestic banks, which influences the UK’s economy: high-interest rates are set to curb inflation, while low-interest rates encourage economic growth by lowering costs for borrowers, including people seeking mortgages.

What are the most common mortgage rates?

Mortgages are available at three main rates: fixed, variable, and tracker. Are you still with us? Feel free to get a cup of tea and join us back here in five.

Here are the main mortgage rates:

A fixed-rate mortgage means your mortgage repayments will stay the same across an agreed number of years – even if the Bank of England’s base rate changes. While this generally allows you to budget more effectively, you could miss out on saving money if interest rates drop.

A variable mortgage means your mortgage repayments may fluctuate based on the base rate it’s tracking. If interest rates increase, so will your monthly repayments, and vice-versa.

A tracker mortgage means your mortgage repayments can go up or down over time – much like a variable mortgage. However, unlike a variable mortgage, the interest rate on a tracker mortgage is set at a fixed amount above or below another rate, which it tracks – usually the Bank of England base rate.

GLAMOUR’s financial columnist, Clare Seal, provides her top tips for securing a mortgage:

Save your deposit in the smartest way possible

For most people, the five-figure deposit is the first and largest hurdle on the way to home ownership. If you’re saving for your deposit yourself, you’ll probably be channelling a fair bit of your income into savings, but it’s worth checking to make sure that you’re maximising your money.

For starters, you could save the first £4,000 of your annual savings deposits into a Lifetime ISA, and you’ll be given an extra £1,000 by the government for free towards your deposit. Then, for the next £10,000, your best instant-access saver is Chip+1, a referral-only account with a 1. 25% return on your savings. Use both of these tools to their maximum capacity, and that’s an extra £1,125 towards your house savings without you having to do anything – and you can multiply that by two if you’re saving with a partner or friend.

Use innovative solutions to help you get organised

There are a few great tools on the market that roll in budgeting, saving and lifestyle design to help you to organise your finances in a more mortgage-friendly way. New apps Nude and Claro each allow you to set goals, with Nude catering specifically to those saving for a home. Lifetise is a similar platform, which also has a handy Homefinder tool and creates a custom saving plan for you; plus, it links up to online mortgage broker Trussle when you’re ready to start the mortgage process. Use all of the tools available to work out what you can afford to aim for and to whip your saving habits into shape.

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