Types Of Interest

Question 1

What are the three types of interest that apt to mortgages?

Answer 1

Fixed rate

Variable rate

Tracker

Question 2

Describe fixed rate interest

Answer 2

The interest rate is fixed so it cannot change for a set period of time e.g. five years

Question 3

Give two advantages of fixed rate interest

Answer 3

No risk is involved as the interest remains the same regardless of the European Central Bank rates

Borrowers know exactly how much the payments will be monthly

Question 4

Give one disadvantage of fixed rate interest

Answer 4

They are usually higher than variable rates so they can be more expensive

Question 5

What is variable rate interest?

Answer 5

An interest rate which varies as it rises and falls with the European Central Bank

Question 6

What is the advantage of variable rate interest?

Answer 6

If the European Central Bank rates fall the borrower will have lower monty repayments

Question 7

What are the two disadvantages of variable rate interest?

Answer 7

If the European Central Bank rates increase repayments will be higher

The European Central Bank often do not pass the reduction onto the borrowers straight away

Question 8

What is tracker interest?

Answer 8

An interest rate which tracks the European Central Bank rates and is usually 1% higher

Question 9

What are the two advantages of tracker interest?

Answer 9

If the European Central Bank rates fall the borrower will have lower monthly repayments

If the European Central Bank rates fall the reduction is passed on to the borrower straight away

Question 10

What are the two disadvantages of tracker interest?

Answer 10

If the European Central Bank rates increase repayments will be higher

If the European Central Bank rates increase the higher rate is passed on to the borrower straight away leaving little time to gather extra funds