With the mortgage interest rates currently dropping as they have done over recent months due to the credit crunch, there’s likely to be a lower mortgage rate available than the one you are currently on. Should you be rushing out to a local mortgage broker to see if there are better mortgage rates on the market for you?
Maybe, maybe not. It’s not always that simple in the world of financesand that’s the reason that whether you are looking at mortgages online or by visiting banks, you should always seek free, independent advice from a mortgage advisor. Don’t just swap mortgages because your new lender tells you they have a better mortgagedeal. Don’t just go out and find a lower rate on the internet comparison tables and apply for it, thinking all will be well once you have completed your new loan.
Why might it not be a good idea in all cases? Well, one of the first questions an independent mortgage broker will ask you at a first interview may be about any tie-ins you have with your current mortgage product. If you move your mortgage now, will you have to pay any financial penalties to your current lender? These could be quite significant. If the penalty is to pay a few months’ interest just to get you out of an existing deal, then it might require you to reduce your monthly mortgage repayments a lot in order to recover the extra expense, and this might not be possible in the long term.
Assuming that your current mortgage product has ended its comfy initial introductory period and you are now on the bank’s standard variable rate, without any tie-ins, then there are still plenty of warning flags that might make it harder or financially uncomfortable for you to remortgage. These, along with any other relevant warnings, should be discussed and worked through with along with other help and advice from your mortgage broker.
For example, you will need to consider do you still count as the same level of credit risk as when you took out the mortgage to begin with, or have you missed any repayments? Has the value of your property fallen, maybe meaning that your borrowing will be an even larger proportion of the house price than when you took out your current product? If your mortgage value is now more than 75% of the value of your house, a future mortgage could be very expensive. These might mean that banks won’t be as happy to offer you a mortgage, or at least not as good an offer. You could be shoved onto a more expensive product.
And even placing these aside, there are arrangement fees, completion fees on your existing mortgage, other legal fees for setting up a mortgage and maybe survey fees on your own property. All of these charges have to be paid for. Pay for them up front as you arrange a new mortgage, and then you have to work out what the long term impact is effectively and decide if the saving in the offer period outweighs the costs involved . Add them to your mortgage and you end up paying more each month.
Either way, reducing your monthly mortgagerepayments isn’t just about finding better mortgage rates. You have to take into account all costs and impacts and total up the fees and charges over the next few years if moving mortgage will save you any cash. Ask an independent mortgage broker to give you a written model, comparing your current position to your proposed position.
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Currently hot in the financial news a lot of recent times are the tracker rate mortgages. The theory goes with these tracker mortgages that they will always exactly follow the Central Bank’s announced base rate. Every time it announces increases or decreases, the tracker rate mortgage product is expected to move in exactly the same way. Usually you agree with your lender what the rate difference will be between the base rate and the interest rate you are being charged.
So why are these tracker rates popular and could we be expecting to see more people taking them out when they remortgage, or are they a huge financial risk? They are popular for those home owners that are willing to place a financial gamble on interest rate changes and are more happy to see their mortgage interest rate change and benefit from future lowering rates, rather than having the security of knowing what future mortgage repayments will be. They are suitable for those homebuyers wanting to gamble that interest rates will go down overall in the future and if they do go up, they can afford to make the loan repayments. Maybe they have other suitable investments that if interest rates go up will be earning them more solid income, so the net result isn’t an issue.
This type of mortgage rate does come with a huge risk. If the central banks suddenly decide that the best way out of the current financial situation is to quickly hike the base rates, then mortgage holders with tracker mortgages are going to find payments shooting up.
At the moment there doesn’t seem too much of an attraction for new home buyers to take out tracker rate mortgages. With base rates already breaking the historic low, they can’t really be expected to fall much further. Yes, there is still room to fall, but not much. If a tracker is for a few years, then there’s a good chance that interest rates could rise above current levels in that time. And with interest rates being so low at the moment, lenders have bumped up the interest increment between the base rates and the interest rates that they are charging. Thus, when the base rate eventually recovers, be it in the next year or in a couple of years, there is a good risk that tracker rate mortgages could be very expensive.
There is also the current issue that some banks have placed a lower limit on how far down tracker rate mortgages will follow the base rate and in some cases, the base rate has already fallen below this enforced limit. Therefore, the lowest rate restriction has been triggered and the tracker interest rates are not following. Financial authorities are not happy with this and are looking into whether it is legitimate or should be stopped. Time will tell.
If you think that loan interest rates could drop further and are happy that if they do rise in the future you will immediately be paying more, then tracker mortgage rates might be the mortgages for you. Check with a mortgage broker that you have fully understood and can accept the associated risks.
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As we are seeing base lending rates tumbling to a historic low, now is a good opportunity to be looking for a new mortgage offer in the hope of reducing your monthly expenses, and hopefully a lot of cash in the future. But if you are thinking about starting to compare mortgage loan rates, what exactly are all of these different types of mortgages available on the market?
First, for about a third of mortgage holders, the fixed rate mortgage is the favoured type of product. With this type of mortgage you have agreed with your chosen lender that for an agreed length of time you will pay a fixed rate of interest. The fixed term duration may be a few months up to a few years, it depends on the offers available on the market. How good the interest rate is will vary by on how long you are fixing it for. The shorter the time period, the less risk there is to the lender that the rates could rise in that time period, so normally the interest rate is usually lower. It is this fixed element of the mortgage that many mortgage holders do like. For the agreed period you know precisely how much you will be paying out for your mortgage. There can be no interest rate rises to impact your budget. You know that unless you move your mortgage, exactly what you will be paying.
But this is not solely seen as an advantage, it is also a disadvantage. If base rates do fall further, as has been in the news a lot currently, then the rate that you are paying doesn’t reduce. And this is the gamble of this type of mortgage. You know precisely what you will be repaying each month, regardless of whether interest rates go up or down.
Once your fixed rate mortgage has come to an end, you can possibly then have a tie in period with the lender for which you have to stay with the bank and pay the variable rate mortgage. This is the return for the bank when they have given you a good fixed rate mortgage. A variable rate mortgage is the basic mortgage that a bank will have available. It is their basic no frills mortgage and moves with the base rate, although not always matching the base rate exactly.
Usually brokers will suggest that all customers on the bank’s variable rate mortgages should review their mortgage and consider switching to another mortgage, or lender. It is usually not reduced in any way and is at risk of going up with every rate change. Some time this type of product is looked at as the bank’s way of earning money. They are typically no frills, no reductions and a sign that you need to be reviewing your mortgage. If this is what you have currently got, then it is high time that you decided to compare all mortgage rates and find yourself a new mortgage.
Could You Be Applying For The Best Mortgage Rates Available Today?
Before you agree to a new mortgage by accepting the first one you see, how important is it to compare top mortgage rates? How important is checking all of the rates on offer? Well, actually, you need to do much more than just look at the mortgage interest rates on offer. You need to compare the entire mortgage product on offer. What charges are involved within the mortgage? What will it cost you to setup the new mortgage and at the end of the term complete it? What are the fees to be charge if before the end of the entire term you want to change to a cheaper product or another lender?
Finding the top mortgage rates is more than just choosing the lowest interest rate from a mortgage chart. It is about looking at what is available on the market and which of all that you can look at is available to you? Your financial history will determine which mortgages you could be accepted for and whether you are eligible for the top interest rates, which are the ones demonstrated in the mortgage tables, or whether you will have to incur penalties and pay higher rates than the best rates that are printed in the top mortgage tables.
What sort of personal finance indicators can affect whether you are eligible for the typical rates or whether you have to pay higher rates? Well, a lot. Until recently, those wishing to buy a new mortgage with a lot of help could easily borrow from understanding banks 125% of the property value. This came at a price. Now you are fortunate if you can find someone offering to lend you 90% of the property value and there are a lot of lenders that charge you a a quarter of a percent more if you are not able to place at least 25% of the property’s value as your deposit on the purchase. If you are buying your first home without equity carried over from a current home, this can make getting onto the property ladder a lot more unaffordable.
There are further factors as well that can and do affect your mortgage application. For one, if your credit history is anything but a perfect credit rating you might not be accepted for mortgage and if you are it is likely to be above the advertised best rate. These credit risks can be a variety different things. For example, you have changed jobs too many times in the recent years, making your lender worry that you might not have a stable job and therefore you might be out of work soon and not able to afford your repayments. Or you have been applying for a lot of credit recently, which could be an indication that you are finding it difficult to make current repayments. Don’t get lost in the mire of trying to compare mortgage rates for yourself – get a mortgage broker to help you to do it!
Mortgages are tricky to understand for new borrowers, don’t get lost!
Plenty of people think that hunting for a mortgage can be quite overwhelming, and who could really blame them. If you have never experienced a mortgage before then comprehending them can be quite difficult work. There is always a lot to take in at first, a load of words and phrases you have almost certainly never heard of and a whole load of mortgage types thrown in just to try and confuse you. Not bypassing the fact that a mortgage is going to be the largest financial transaction you will be part of in your life, at least until your next mortgage! So what do you need to know before you start to compare mortgage rates?
To explain mortgages easily, a mortgage is a loan from a mortgage lender you use for the purchase of a property. The property is then held by the bank as security until the entire amount of the mortgage has been repaid along with the associated interest payments. Paying off a mortgage can take a very long time, probably 25 years or longer.
To try and confuse you many building societies like to use a range of words for different things. Some banks may refer to themselves as a mortgagee. This is basically the legal name for the mortgage lender. They may also refer to you by the word ‘mortgagor’. This is the legal name for you – the mortgage holder or borrower.
When paying back your loan there are two alternative methods you can choose to go about it. The first mortgage repayment method is the capital repayment method. This type of repayment is where you pay back the interest on the mortgage along with a small amount of the initial capital each month. This will be done until the whole amount of the loan is repaid to your building society.
The second method is by paying the bank the interest only for the length of the mortgage. This type of repayment is where you will only pay back the interest on the initial mortgage each month, and the loan itself is paid back by using some sort of investment that runs along side the loan. This is very reliant on finding a reliable investment that will guarantee to repay the loan at the end of the period. Endowment policies have been used for this in the past and other borrowers have relied on inflating property prices to secure the repayment of their loan. Obviously, both of these methods are not without their worries!
As it is for everything, mortgages are different for every borrower. There are a variety of types of mortgage for nearly every situation and finding the right one can sometimes be time consuming. Talking to a mortgage broker or mortgage advisor if you have never done it before can be a very worth while thing and they can help you to compare best mortgage rates. There is nothing worse than having a loan that isn’t the correct choice for you.
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