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Why Does the Interest Payable on a Mortgage Change?

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Mortgage interest rates change all the time and this can make life difficult for those of us who have to make such payments. These fluctuations can mean that we sometimes have to pay more money each month on interest – or at a later date if we have a fixed rate mortgage. The fact that the mortgage rate is so unpredictable is one worry that people have when they apply for one. Wouldn’t it be great if there was just one mortgage rate and that it never varied? Unfortunately this isn’t really likely to ever happen.

Why Does the Interest Payable on a Mortgage Change?

The mortgage interest rate is determined is influenced by the actions of the Monetary Policy Committee. This committee is tasked with helping to keep inflation in check in the UK by adjusting the interest rate for base lending – this occurs every month. The decisions of the Monetary Policy Committee will determine how much the Bank of England charges to lend money.  Banks will respond to changes by the Bank of England in that they too will generally adjust their interest rates – including their mortgage interest rates. If it is more expensive to borrow money then the banks will pass this onto their customers. This is why there can be a lot of variation in interest mortgage rates over time. If the Bank of England didn’t use this mechanism to control inflation then it could lead to bigger problems in the economy.

How to Manage the Changing Mortgage Interest Rates

If you are worried about how the changing mortgage interest rates are going to affect your monthly outgoings then there are ways you can limit this. There are a number of different mortgage options and the one you choose will determine how changing mortgage rates will impact your outgoings; although it will not be really possible to escape the impact of changing interest completely. Here are just some of the different mortgages you can choose from.

  • A capped rate mortgage is one where the interest rate repayments are not allowed to rise above a certain level – this will usually only be for a certain time period of the loan (the maximum is about 5 years). You may also find that this type of mortgage also has a minimum rate that you will need to pay – this could potentially mean that you could end up paying more on interest then you would normally.
  • A fixed rate mortgage is also usually for a certain length of time during which your interest rate will be set. Although a fixed rate mortgage can be a good choice it can work out quite expensive if you want to have this for a longer time period than 5 years.

Varying interest payments on mortgages can be a real burden for many of us; especially when the rate is going up. It is not easy to see the amount of money we have to spend each month fall as bills go up. That is why a fixed rate or capped rate mortgage can be a good short term solution.

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Meet the Author

Anthony Carter currently resides in Fife, Scotland with his wife Lisa, and their three wonderful children. As a senior editor for various publications, if he's not reading and writing, you would find him photographing and traveling to some of the most far-flung locations around the world.

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