Go paper-free
Amend paper-free preferences for your statements and communications.
How does mortgage interest work?
If you have a mortgage, you'll need to pay interest. This interest is in addition to any money you borrow. Learn how mortgage interest works, how it’s calculated and how it ties into getting a loan for your home.
What is a mortgage interest rate?
A mortgage interest rate is the rate that lenders charge on any money you borrow to buy a home. It’s usually shown as a percentage within your mortgage offer.
For example, a lender might offer you a 5% mortgage interest rate on a repayment mortgage. The 5% is an annual rate, the interest is worked out monthly based on your remaining mortgage balance.
Your mortgage interest rate might look different depending on the amount you borrow, the type of mortgage you get, your deposit amount, any lender offers or deals.
How do mortgage interest rates differ?
There are are several interest rate options – and each one affects your mortgage in a different way.
How is your mortgage interest rate calculated?
Lenders work out mortgage interest rates as a percentage of the amount you borrow. Various things can affect how lenders work out your mortgage rate, including
Loan to value ratio
The more deposit or equity you have, the lower your LTV. A lower LTV usually means access to better interest rates. Typically, the lowest rates are available for the best LTV ratios.
Type of mortgage
The interest rate offered on a tracker mortgage might be different to a fixed rate mortgage. The length of your initial deal can also affect the interest rate you get.
Bank of England base rate
As the base rate goes up and down, this can have an impact on mortgage rates.
Market conditions
Various factors can affect mortgage rates, such as the economic landscape, competitor pricing and regulatory changes.
Mortgage rate changes
Can my mortgage rate change?
Yes, your mortgage rate can change, but it depends on the type of mortgage you have.
The rate on a fixed-rate mortgage stays the same during your deal. But a variable rate, such as a tracker rate or standard variable rate can change monthly.
What causes mortgage rates to change?
Things like inflation and other economic factors might cause lenders to change their rates.
The Bank of England sets the benchmark interest rate, which directly influences the market and lender costs.
Other causes might include changes to your loan to value ratio, which could affect the mortgage rate you’re offered.
What happens if your mortgage rate changes?
If your mortgage interest rate changes, your monthly repayments will too.
If you have a tracker mortgage and the Bank of England base rate changes, your mortgage rate will usually change from the following month.
Our interest rates
Whether you’re buying your first home or remortgaging, our mortgage rate calculator can help.
You could lose your home if you don’t keep up your mortgage repayments
Let’s take a closer look
-
Lenders can work out mortgage interest rates daily or monthly. The calculation depends on the type of mortgage. Most lenders calculate interest daily but charge it monthly as part of your regular repayments.
-
There isn’t a single ‘good’ interest rate. The interest rate you’ll pay depends on several things, such as the size of your deposit or the amount you’re borrowing. It’s important to compare mortgage rates and make sure you can afford the repayments.
-
You can compare mortgage rates using the APRC (Annual Percentage Rate of Charge). This figure helps you understand the total cost of a mortgage during its term. It considers any lender fees, interest rates and legal charges.