Bank of England has trimmed the base rate from 5.75 to 5.5 . It is good news for me as my biggest loan - Mortgage - is on variable rate.
It is relieving that they have reduced although there are signs of economy slow down!! For people who are on Variable Rate - the mortgage payment will come down £15 to £20 per month for a £100,000 mortgage.
I will try to explain some of the jargons used here ..
Mortgage - Is nothing but housing loan. I started hearing this word after coming here.
Bank of England Base Rate -This is the base rate set by bank of england for lending to other banks. In UK it is 5.5% now.
The base rate in US is 4.5% .. Lower the rate .. better for borrowers .
Variable Rate - also known as Floating Interest Rate - If you are on this option , the interest rate for your borrowing will change according to the base rate. It is advisable to take this if you think base rate is going down..
Fixed Rate - If you are on this option, you know how much you will be paying per month for the borrowing for the agreed term. This will not fluctuate with the base rate change. Banks usually give you loans at a higher interest rate than the base rate when you go for fixed rate. Many go for this option as they think their income will increase over time and if the outgoing for mortgage is same, they could have more money for spending and also risk is minimised.