FTB newbie mortgage interest question!

seabass90

Hi all, have been comparing different mortgages within my reach online this week but I don't understand everything as much as I need to.

Take Barclays for example. I was looking at 5 year fixed rate (repayment) mortgages with them- they offer an 'initial interest rate' of 2.89%... Does that mean the interest would be fixed at 2.89 for 5 years and then revert to 'normal'? About 4%?

My second question is the 'monthly repayments'. For the mortgage above my monthly repayments would be £389. Have they worked this out using the 2.89%? If so doesnt this mean my monthly payments would rise significantly after the 5 year fixed period? 2.89% to 4% seems a big jump. If this is the case what maths do I need to do how much my monthly repayments would be at a rate of 4%? I'd also be interested in working out how much they'd be at 6%.. Would that be worst case scenario interest wise?

Sorry all, very new to this as you can tell!

hcb42

Hi

there are mortgage calculator links on MSE that you can plug in the numbers and see the difference.

Yes, a five year fixed means you get five years at that rate then revert to the variable rate - (or do what a lot do and remortgage for another fixed...but you can only do that if you meet the lending criteria at the time)

seabass90

hcb42 wrote: »

Hi

there are mortgage calculator links on MSE that you can plug in the numbers and see the difference.

Yes, a five year fixed means you get five years at that rate then revert to the variable rate - (or do what a lot do and remortgage for another fixed...but you can only do that if you meet the lending criteria at the time)

Thanks very much, have just used the MSE calculator and looks like my monthly payments would go to £580 if interest was 6%. I know next to nothing about finance, the economy etc.. my parents said that when they bought their house in the 80's interest rates were at 10%. What is the danger of that happening in the future? Should I be expecting interest to rise higher than 6%? If so I would be priced out of a mortgage unfortunately.

amnblog

You need to engage a mortgage broker who will explain all of this for you.

HappyMJ

seabass90 wrote: »

Thanks very much, have just used the MSE calculator and looks like my monthly payments would go to £580 if interest was 6%. I know next to nothing about finance, the economy etc.. my parents said that when they bought their house in the 80's interest rates were at 10%. What is the danger of that happening in the future? Should I be expecting interest to rise higher than 6%? If so I would be priced out of a mortgage unfortunately.

If interest rates increase by a lot it's probably in response to high inflation so your wages will also be increasing too so the pain won't be that bad.

kingstreet

If you get a key facts illustration for the selected product, it shows the payment on the initial rate; the payment on the "follow-on" rate after that (section six) and the amount a 1% rate increase would add to your monthly payments (section seven).

seabass90

HappyMJ wrote: »

If interest rates increase by a lot it's probably in response to high inflation so your wages will also be increasing too so the pain won't be that bad.

Good point! Thank you.

R_P_W

seabass90 wrote: »

Good point! Thank you.

Do not assume that this will happen!