We own our house outright, so the increase in interest rates from 3.5% to 4% – the highest level for 14 years – doesn’t affect us too much.
In fact, I actually got a laugh out of it when I read the BBC’s guide to interest rates (it was written last year, but they’ve linked to it again after today’s announcement). They explain:
Interest is the extra cash you get charged for a loan
If a friend loans you £10 at a 10% interest rate, you’ll pay them back £11. That’s the £10 you borrowed plus an extra £1 (10% of £10) as interest. Banks have more complicated ways of calculating this, but that’s the general idea.
BBC
While this is not actually wrong, the ‘more complicated ways’ the banks use make it very close to being so. It is far, far more complex than that, and how they have worded it implies the banks are inventing some mysterious calculation intended to rip people off. They are not.
I’m even more amused by why they thought it necessary to explain even the simple example they gave.