Mortgage interest calculator

Why do interest rates change?

The Bank of England sets the base rate for the UK and usually it’s reviewed each month. Although banks don’t need to follow the base rate, it does tend to be reflected in mortgage interest rates, typically from the month following any change.

As a rule of thumb, when the base rate is higher, interest rates on mortgages tend to be higher and when the base rate is lower, mortgage interest rates are also often lower.

What’s the impact of a base rate change on my mortgage?

When the base rate changes, the impact you’ll see depends on what type of mortgage you have. Tracker rate mortgages are usually linked to the Bank of England base rate - so your mortgage payments will drop in line with the base rate if it reduces. If the base rate rises, you’ll see a corresponding increase in your mortgage repayments. If you choose this type of mortgage, you should be sure that you have the flexibility in your monthly income to account for fluctuations in your mortgage repayments.

If you’re on a discount or standard variable rate mortgage, it’s likely that when the base rate rises, you’ll see an increase in your mortgage payments too, but the specific amount is determined by your lender. The same applies if base rate decreases. Our interest only mortgage repayment calculator can give you a good idea of how much additional interest you might have to pay, but you should speak to your lender to confirm this.

For those on fixed rate mortgages, you’re only likely to see a change in your payments once you reach the end of your current deal. If rates have gone up whilst you’re tied into a mortgage deal, you may find that it’s more expensive to remortgage to a new rate.

What if you can’t afford an interest rise?

Once you’ve used our mortgage interest rates calculator, check your outgoings to see if there are any savings you could make. If you are concerned, it’s really important to contact your existing lender as soon as possible and they will support and set out the options available to you.

The other sensible option is to look at whether you’re on the best deal for your circumstances. If your current deal is about to come to an end, start looking at your options for switching to ensure you’re still on the best rate. Your current mortgage is likely to switch you to a standard variable rate when you come to the end of your current deal, which could be significantly higher than the best rates available on the market. Get in touch with our expert team at L&C who can help you to navigate the deals on offer and find the best one for your situation.

Even if your mortgage deal isn’t due to expire, it’s still worth looking at whether remortgaging could be the right option for you. It’s likely that you’ll have to pay early repayment charges (ERCs) to exit your deal early, but it may still be more cost-effective to switch, depending on how much your repayments are due to go up by and what rates are currently available.