Mortgage Rate

Mortgage rates can be fixed, staying the same for an agreed period, or variable, changing in line with a benchmark rate or the lender’s own rate. Lenders set rates based on wider interest rates, such as central bank rates and bond or swap rates, plus a margin reflecting their costs and the borrower’s risk.

Small differences in the rate make a big difference over time. For example, on a 250,000 mortgage repaid over 25 years, a rate of 4% gives monthly payments of about 1,320, while a rate of 5% gives about 1,461, roughly 142 more a month.

The rate a borrower is offered depends on factors such as the size of their deposit, measured by the loan-to-value ratio, their credit history, their income, the type of mortgage and the length of any fixed period.

When comparing mortgages, borrowers should look beyond the headline rate to fees and the overall cost. In some countries, lenders must quote an annual percentage rate that includes certain fees, making comparisons easier.