Mortgage Interest Rates

Learning Outcomes The main learning outcomes for this lesson are: Learn what the interest rates are for mortgages. Understand the government scheme called ‘Help to buy’. Learn what the term re-mortgaging means.

Starter We are going to recap last lesson, you must answer all questions on Mortgages and Renting on the worksheet. You have 5 minutes!

How does interest on a mortgage work? When choosing a mortgage the interest rate is one of the most important factors to consider. You must research or speak to your advisor about the best one for you! Overall the lowest interest rates are offered to those people who have large deposits, have more equity in their property or are re- mortgaging. What do you think re-mortgaging is?

Re-Mortgaging Re-mortgaging is when you take out another mortgage on your property. For example you have a mortgage on your house and you ask your advisor to re-mortgage the property so you can get extra money for an extension etc. They would value your house first to see if it has increased in value or not. If it has then the advisor will arrange with the bank or building society to give you the extra money on your mortgage. For example if you bought your house for £250,000 5 years ago and now the property is worth £280,000 they may give you the £30,0000 extra if they thought you were a good customer. Your monthly payments will change to include this extra money, so they will increase. This process is known as re-mortgaging. Not everyone will be guaranteed a re-mortgage though as it does depend on your circumstances and property value. This process is known as re-mortgaging. Not everyone will be guaranteed a re-mortgage though as it does depend on your circumstances and property value.

Back to Interest Rates To get one of the best interest rates around you ideally would need a 40% deposit. This is quite a lot of money and not many people can afford to save up this much so it is more typical that people save about 10-20% deposit. This means they will be on a higher interest rate. The good news is that the mortgage rates are falling slightly! Whichever mortgage you decide to go for, the interest can be calculated in different ways. They are: Daily – this is where the interest is calculated on the outstanding balance every day. So as you pay off the amount the interest will fall, you won’t have to pay as much interest. Monthly - The balance is only reduced at the end of the month. Quarterly - The balance is only reduced at the end of 3 months. Annually – the interest is still calculated daily but it is based on the previous year’s balance, so it takes a year before the capital amount is reduced. This means even though you are paying the money off the interest will stay the same till the following year.

Activity Write a brief description of what each of the following terms mean: Fixed rate mortgage Interest free mortgage Repayment mortgages

Help to Buy Scheme Watch this short video:

Summary of the Help to Buy Scheme Help to buy is for first time buyers mainly but also people looking to move up the property ladder. You only have to have a 5% deposit. It is backed by the government. You’ll need to contribute at least 5% of the property price as a deposit. The government will give you a loan for up to 20% of the price, this is interest free for the first 5 years and can be repaid at any time or when the home is sold. You’ll need a mortgage of up to 75% to cover the rest.

Activity You must get into pairs and create a leaflet about Mortgages. You will need to include the following headings: What are mortgages? What are the different types of interest rate mortgages available? What is re-mortgaging? What is the help to buy scheme? You have 20 minutes!

Plenary Pupils will be asked what they have learnt today. Did you find the information useful?