There are various ways of working out the interest rate on your mortgage and an unbelievably wide choice of mortgages out there. All may not be what it seems, however. Dont make the mistake of thinking interest rates are the be all and end all of the mortgage search.
If youre paying interest only on your loan, with no capital repayment, the date that interest is calculated makes no difference, but otherwise its not quite so simple.
Some building societies offer loans on which interest is calculated and charged per annum. When interest is worked out in this way, the end result is that you are charged interest on money which you have already paid. This is because interest has been accruing for the full year on the amount outstanding.
Often the building societies using this method are the ones that appear to be the leaders in the cheap mortgage tables, offering loans with rates as reasonable as 4.19%. In actual fact, when using this method of repayment you can effectively add 0.13 percentage points to the headline rate, making a rate of 4.32%. Amongst others, the Bristol and West, Leeds, Portman and Alliance and Leicester Building Societies use this method....
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