Fixed-rate versus variable mortgage interest

A fixed interest rate means that your interest stays the same for a fixed period. You won’t benefit if interest rates drop, as you would with a variable interest rate. In certain situations, you can lower your fixed-rate interest when the ratio between your house and your mortgage changes. Take a situation such as the ‘WOZ’ value increasing, or one in which you have made additional mortgage repayments. This could change the rate category of your mortgage interest, and possibly entitle you to pay less interest.

If you opt for a fixed interest rate with an interest rate reflection period, you can decide when to start a new fixed-rate period any time in the last two years of your fixed term. If you expect interest rates to rise, it may be a good idea to fix a new interest period during the interest rate reflection period. But if you expect interest rates to fall, it’s probably better to wait as long as possible before fixing your new interest rate.

If you can’t decide between fixed-rate or variable interest for your mortgage, take a look at your financial situation and any future plans you have for your house. Arrange a free, no-strings-attached appointment with a mortgage adviser to learn more about the implications of your decision. The adviser can also compile a detailed mortgage calculation for you.

Variable interest comprises five parts. Every part is variable and together they determine the level of the interest rate. If your variable interest rate changes, we will tell you which part or parts are responsible. Variable interest comprises:

• The basic rate
  The amount we pay to procure money to finance mortgages
• Surcharges relating to developments on the capital markets and capital costs
  We pay a surcharge for procuring money for a longer term on the money and capital markets. We also incur costs for holding on to money.
• Individual risk surcharges
  We consider the relationship between the amount of the loan and the value of the property. This determines the rate category and risk surcharge on your interest.
• Ongoing costs
  We use part of the interest you pay to administer and manage your mortgage.
• Profit
  As a commercial company, we also use part of the interest to generate profits.

You cannot choose a variable interest rate with:

• Bank Savings Mortgage
• Savings Growth Mortgage
• Start Secure Mortgage
• Multi-Choice Mortgage

Is the period you agreed with us over? Then you make new arrangements and can choose the same fixed interest period or a shorter or longer period. How much you pay then depends on:

• The fixed interest period you choose
• The interest rate at that time

Could you use some help with this calculation? Our mortgage advisors are happy to assist you.