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Mortgage interest rate

What Exactly Is The Mortgage Interest Rate?

The mortgage interest rate is the rate of interest at which you pay back your mortgage payments. The interest rate is decided by the lender and can be, in general, either a fixed rate or a variable rate.

How does mortgage interest work?

Whenever you're taking out a mortgage, one of the first things you're asked to consider is the mortgage interest rate. Yet, this headline rate of interest is just one part of how your interest is calculated. The way your loan is structured overall can have a significant effect on what you end up paying back.

One of the first things to understand is the difference between capital and interest. The capital is the monetary value of the loan and the interest rate is the fee charged by the lender for lending you that money. Over the course of, say, a 25-year mortgage, you pay back the loan and the interest charged on top of that loan by the lender.

Alternatively, you can have an interest-only mortgage. That's where you only pay the interest on the loan given but not the money itself. At the end of the mortgage term, the money still has to be paid back to the lender. However, lenders aren't keen of this type of arrangement, since the lender may not be able to pay back the money, or capital, loaned.

The way the interest is calculated also varies from lender to lender. It can be calculated from daily to annually or anything in-between. The most favourable interest calculation for borrowers daily. This will reduce the amount of interest owed and over 25 years of a mortgage, for instance, can make a considerable difference.

There are a number of ways you can reduce the interest you pay on your mortgage. The first way is when you're initially looking for a mortgage. Make sure you get the best mortgage deal by comparing the many different offers, including interest rates, made available by lenders. Make sure you get the best deal relevant to your own particular circumstances.

Reducing your mortgage term from 25 to 20 or 15 years will reduce your interest repayments overall although raised your monthly mortgage repayments. A number of lenders allow you to pay more than necessary to get your mortgage down. This allows you to reduce the mortgage quicker and, likewise, the interest charged.

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