Home loans are easily available in the UK these days. Generally they are offered at various rates which include home loans at fixed rates, home loans adjustable rates
and home loans with balloon-rates. All these rates are based on the base interest rate set by the primary authority on loans in the UK, The Bank of England. Currently, the base rate has been held at 5%. It is important for a borrower to know about the various rate options to choose what would suit them best. The various types of home loans available and the current rates for each are as follows:
Fixed Rate Home Loans
These are the most common and preferred kind of home loans in the UK. As the name suggests, in this type of loan, the interest is fixed. A borrower enjoys the benefit of paying the same rate of interest during the entire repayment period, irrespective of market changes. These loans are beneficial if the market experiences hikes in interest rates, but on the downside, a fall in interest rates in the market will not reflect on fixed interest rate loans. Two and five year fixed rate home loans are the most popular and currently, leading lenders such as Abbey, Halifax and Lloyds TSB charge rates of upwards of 7% on these loans.
Adjustable Rate Home Loans
In this type of loan, the interest rate and the monthly payment are pretty low at the beginning. The rate of interest is subject to change during the loan repayment period, depending on the Standard Variable Rate (SVR) at that point of time. Depending on the SVR, the interest rate on the loan may increase or decrease during the loan repayment period and the borrowers have to make their payment in accordance with the updated rate. The current average Standard Variable Rate stands at a little over 7%.
Home Loans at Balloon Rates
In this type of loan, the lender gives the borrower a certain period of time of repayment at a certain interest rate, after which the interest rate changes. Popular lenders offer two options when it comes to the balloon rate option. One is the 7/23 and the other is the 5/25. A borrower has the option to pay the entire amount within 7 or 5 years at the rate fixed, or he/she can also continue to repay the loan at the new interest rate. In these two options, 7 and 5 denote the period before the date of balloon maturity and 23 and 25 indicate the rest of the loan repayment term. In both options, the maximum repayment period is set at 30 years. The current initial fixed rate offered on balloon rate loans is around 7%.
Finally, a borrower must also take into account that all lenders will charge extra fees and charges associated with the loan. These can be of various types including closing costs and agent fees. So, it is essential for a borrower to be very clear about which portion of the total amount is being borrowed and which portion is being paid as extra fees towards the loan
