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 rate available than the one you are currently on. Should you be rushing out to a local mortgage broker to see if there are cheaper 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 mortgage tables online or by visiting your local banks, you should always seek advice from a mortgage advisor. Don’t just swap mortgages because your new bank tells you they have a better mortgagedeal. Don’t just go out and find a lower interest rate on the internet and apply for it, thinking all will be well.
Why might it not be a good idea in all cases? Well, one of the first fact finding questions a 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 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 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.
Assuming that your current mortgage product has ended its comfy initial introductory period and you are now on the standard variable rate product, without any remaining 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 that need to be looked at, should be discussed and worked through with along with 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? Has the value of your property fallen since you took out your current mortgage, maybe meaning that your new level ofborrowing will be an even larger proportion of the house price? These might mean that lenders won’t be as happy to offer you a mortgage, or at least not as good an offer as the one you currently have. You could be shoved onto a more expensive product because of a change of circumstances.
And even placing these aside if they are not an issue to you, there are arrangement fees for your new mortgage, completion fees on your existing mortgage, other legal fees for setting up a mortgage and maybe survey fees on your 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 for the entire life of the mortgage.
Either way, reducing your monthly repayments isn’t just about finding better mortgage rates. You have to take into account all of the associated costs and impacts and total up the fees and charges over the next few years if moving mortgage will actually save you any cash. Ask a mortgage broker to give you a written model, comparing your current position mortgageto your proposed position.
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Currently in the financial news a lot of recent times are the tracker mortgage rates. The theory goes with these tracker mortgages that they will exactly follow, or track, the Central Bank’s announced base rate. Every time it announces increases or decreases, the tracker rate mortgage 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 charged.
So why are these tracker rates popular and in the future could we be expecting to see many more people taking them out, or are they a huge financial risk? They are popular for those that are willing to place a financial gamble on interest rate changes and are more happy to see their interest rate change and benefit from lowering rates, rather than having the financial security of knowing what future mortgage repayments will be. They are suitable for those homebuyers wanting to gamble that interest rates will go down in the future and if they 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 monetary risk. If the central banks suddenly decide that the best way to climb out of the current financial situation is to quickly hike the base rates, then mortgage holders with tracker mortgages are going to find repayments shooting up.
At the moment there doesn’t seem too much of an attraction for new home buyers to take out tracker mortgages. With base rates already breaking the historic low, they can’t really fall much further than they currently stand. Yes, there is still some room to fall, but not much. If a tracker is for a few years, then there’s a good chance that during that time interest rates could rise above current levels in that time. And with interest rates being currently so low at the moment, banks have bumped up the interest increment that liesbetween 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 risk that tracker rate mortgages could be very expensive.
There is also the 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 limit. Therefore, the restriction has been triggered and the tracker interest rates are not following. Financial authorities are not thought to be 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 you will immediately be paying more, then tracker rate mortgages might be for you. Check with a mortgage broker that you have fully understood the associated risks.
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With interest rates dropping to a historic low, now is an excellent time to be looking for a new mortgage product in the hope of saving some monthly financial budget, and hopefully a lot of cash in the future. But if you are beginning to compare mortgage loan rates, what precisely are all of these different types of mortgages available from banks?
To start off with, for about a third of mortgage holders, the fixed rate mortgage is the desired type of product. With this type of mortgage you have agreed with your chosen lender that for a certain amount of time you will be charged a fixed . The fixed term duration might be a few months up to several years, it depends on the offers you can select from on the market. How low the interest rate is will depend on how long you are signing up to it. The shorter the time period, the less risk there is to the lender that the rates could increase in that time period, so normally the interest rate offered is typically better. It is this fixed aspect of the mortgage that many mortgage holders do like. For the agreed time you know exactly how much you will be paying out for your mortgage. There can be no interest rate increase surprises to affect your budget. You know that unless you move your mortgage, precisely what you will be paying.
But this is not only seen as an advantage, it is also seen as a disadvantage. If base rates do drop more, as has happened drastically currently, then the rate that you are paying doesn’t reduce. And this is the gamble of this type of mortgage. You know exactly what you will be paying, regardless of whether interest rates increase or decrease.
After your fixed rate mortgage is over, you might then have a tie in period with the lender during which you have to stay with the bank on their variable rate product. This is the return for the lender when they have given you a particularly 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 moving with the base rate exactly.
Usually mortgage brokers will advise that all customers on the lender’s variable rate mortgages should review their mortgage and think about switching to another product, or lender. It is usually not discounted in any way and is at risk of going up with every rate change. Quite often this type of product is looked at as the bank’s way of earning money. They are typically no frills, no savings and a sign that you should be looking at your mortgage. If this is what you have got, then it is well high time that you decided to compare mortgage rates and find yourself a brand new mortgage.
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With the base interest rate at a record low, is it the right time to look fixed rate mortgage deals? You might be forgiven for expecting that because rates are about as low as they are ever likely to be, then now is when you should fix your mortgage deal. But be cautious of changing mortgages and take a mortgage broker’s advice before you try to compare best mortgage rates on your own!
Yes, interest rates are lower than it has ever sunk before, but at the time of writing, the banks are yet to announce if they will reduce their costs of borrowing. If they do, that will be the variable rates that will reduce – the rate they charge to customers that are not on special deals. This will also affect capped rates and discounted mortgages.
But the lenders are not soft. They know that with base rates at an all time low, rates are more than likely to go up in the future – especially over the duration of a 25-year mortgage. They will be calculating whether they think the central banks will keep the low levels for a few months, reduce them further or start to raise them back up later this year.
If the banks think there is any risk of base rate rises in the next year, then they are not going to tie their own hands by offering low rate fixed mortgages for 2, 3 or even 5 years. Instead, they will offer good looking fixed rates that switch to the variable rate at the end of 2009 possibly for a long tie in period. Or they will add a a small amount onto the rate and let it run into 2010.
So who out of the millions of mortgage payers are likely to be benefiting at the moment from the low base rate? Well the third on fixed rates probably are not – their fixed rates have stayed fixed. Variable rates, also taking in discounted and capped rates, might have fallen, but with reports that only 19 of the 90 lenders passed on December’s cut fully, there’s a good chance that those on variable rates aren’t benefiting either.
The group seeing reductions at the moment should be those on tracker products, but even some of these have floors built into them, stating that if the central bank’s base rate is reduced below a given level they don’t have to keep tracking it, whilst other lenders have increased the amount above the base rate their new tracker mortgages track.
So are tracker mortgages the way forward and you should try to compare today’s mortgage rates for these? Well with capped floors and an climbing gulf between base rate and rate charged, plus the chance interest rates will climb over the next few of years, it is anyone’s guess what is best. It all relies on your financial position and outlook. Are you wanting to take the chance of a low rate with trackers, but able to pay if they do increase? Do you need to budget closely with a fixed rate mortgage so that you know what you will be spending? You must speak to a financial advisor who can advise you.
Are You Eligible For The Most Favourable Mortgage Rates Advertised At The Moment?
Before you agree to a new mortgage by accepting the first one you see, how important is it to compare today’s mortgage rates? What can comparing rates do for you? Well, in honesty, you need to do much more than just glance through the mortgage interest rates on offer. The entire mortgage products on offer to you need to be looked at in detail. What are the fees included 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 charges involved if before the end of the entire term you want to change to a cheaper mortgage or another lender?
Tracking down the top mortgage rates is more than just picking the best mortgage rate in a table. It is about examing what is currently on the market and which of all that you can uncover is applicable to you? Your financial circumstances will determine which offers you could be accepted for and whether you are can apply for the best interest rates, which are the ones the mortgage charts display as typical rates, or whether you will have to pay penalties and pay higher rates than the typical rates that are printed in the comparison rate tables.
What usual personal finance influences can affect whether you will be applying for the top rates or whether you might have to settle for a more expensive mortgage? Well, too much. Until recently, those wishing to buy a new mortgage with a lot of help could easily borrow from some banks 125% of the property value. This was not without extras. Now you are lucky if you can find a bank offering to lend you 90% of the property value and there are plenty of lenders that charge you a couple of tenths of a percentage point more if you are not able to invest at least 25% of the property’s value as your deposit on the transaction. First time buyers without equity earned from a current house, this can make getting onto the property ladder far more unaffordable.
There are more factors as well that can and will affect your load application. To begin with, if you are seen as having anything but a perfect credit rating you might not be offered a mortgage and if you are it is possible to be above the stated typical rate. These credit risks can be loads of alternate factors. For example, you have moved jobs too often in the recent years, making the lender worry that you might not have a stable job and therefore you might be unemployable soon and not able to make your repayments. Or you have been applying for a lot of credit recently, which could be a flag that you are finding it difficult to make current repayments. Don’t get stuck in the mire of trying to compare today’s mortgage rates for yourself – get a mortgage broker to help you to do it!
Key tips to consider when hunting for a mortgage.
Purchasing your house is one of the largest financial transactions we will have in our lives. Many of us will have to take out a mortgage in order to purchase the home and so choosing the right mortgage for you is important.
To help when searching for a mortgages here are some easy pointers for you to remember:
Shop around – If you choose to complete the first mortgage that you see then you may be loosing out on a better deal elsewhere. Try to save yourself money by shopping around and comparing other mortgages to see which have the best compare mortgage rates for you.
Percentage fees – When selecting a loan check the percentage fees that are allotted to it. Some of the most favourable percentage fees about today are 2.5%. With this size percentage fee it could mean that on a mortgage of about £100,000 you will have to pay an additional £2500 in percentage fees. Seeking a low percentage can save you thousands.
How will you pay – Before you select your loan, work out how you will repay it and the additional costs that are involved. Some building societies will charge set up fees upfront, others may include them into the amount of your loan.
Exit fees – when your mortgage offer has ended you may incur an exit fee if you want to go to a different building society. Check up front and make sure this loan is right for you and the exit fee is not too high if you should wish to more.
Flexible repayments – dependent on your circumstances you may select a loan that allows you to overpay, underpay or take payment holidays. Again, check what your bank will allow you to do and be certain it is the best for you.
Higher lending charge – If you are arranging a mortgage that is 90% or over the property’s value then you can expect to be charged a higher lending charge. Some banks can have very costly lending charges so be careful and shop around before you select your mortgage.
Incentives – Many building societies will give you ‘freebies’ as an inducement to go with them. However, a lot of the time these incentives aren’t actually free, they are just added into the overall cost of your deal. Make sure you do your research on the deal and don’t let them trick you.
Read the small print – As with everything, make sure you understand the small print. Sometimes there can be negative aspects of the deal that you are unaware of. Be alert and do your research before you agree to a mortgage.
Mortgage broker – these are your friends in selecting a mortgage and can take the unease of trying to compare mortage interest rates for you with their knowledge. Plus, their services are usually free.
Mortgages are tricky to comprehend for borrowers, don’t be a victim!
Plenty of borrowers assume that looking for a mortgage can be quite overwhelming, and one can really blame them. If you have never experienced a mortgage before then understanding mortgages can be quite hard work. There is always a lot to understand to begin with, a load of words and phrases you have probably never heard of and a whole load of mortgage types thrown in just to try and confuse you. Not forgetting 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 clarify mortgages easily, a mortgage is a loan from a bank you use for the purchase of a property. The property is then held by the building society as security until the whole amount of the loan has been repaid along with the associated interest payments. Paying off a mortgage can take a very long time, on the whole 25 years or longer.
To try and confuse you many banks like to use a variety of words for different things. Some building societies may refer to themselves as a mortgagee. This is basically the legal name for the bank. They may also call you by the word ‘mortgagor’. This is the legal name for you – the mortgage holder or borrower.
When repaying your mortgage there are two choices of methods you can opt to go about it. The first mortgage repayment method is the capital repayment method. This type of method is where you pay back the interest on the mortgage along with a small amount of the initial borrowing each month. This will be done until the full amount of the loan is repaid to your bank.
The second method is by paying the mortgage lender the interest only for the length of the mortgage. This methoid 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 mortgage. 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 rising house prices to secure the repayment of their loan. Obviously, both of these methods are not without their concerns!
As it is for everything, mortgages are different for every borrower. There is a different type of mortgage for nearly every situation and finding the right one can sometimes be time consuming. Getting help the help of 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 all mortgage rates. There is nothing worse than having a mortgage that isn’t the correct choice for you.
Because Changing Mortgage Rates Isn’t Always The Best Way To Reducing Expenditure
Many borrowers are seeing their current mortgage deals coming to an end and are thinking about moving to a new mortgage to save expense. But is it always the case that a lower rate mortgage costs less in the long run?
On the face of it, if you can reduce your monthly mortgage repayments by half a percent then you could be saving yourself a lot of monthly expense. This could be a reduction that you can spend elsewhere or if you are unlucky and expecting a huge rise in mortgage outgoings, just a reduction in the increase of the monthly cost.
Using mortgage comparison charts tell you what remortgage is the cheapest on the market today, but is it right for you? More importantly, will it actually reduce your outgoings in the long term?
Although interest rates have tumbled at the moment and are expected to fall further for some months, some experts think a drop is on the cards in the short term. So if you lock into a 2-year, 3-year or longer mortgage with a fixed rate, by the end of the term you might be paying more than a variable mortgage if you had stuck it out.
On the other hand, we could be surprised by a recovery and interest rate increases and then you would be in pocket. That’s the nature of this game. But this isn’t the only area in which you could be spending a lot more than you need to.
Look closely at those best remortgage offers that you see in mortgage charts and study the small print. Look for the upfront fees – arrangement fees, legal fees etc. Take a look at your existing mortgage, how much is involved in closing that? There may be exit and deed release fees. These fees may also exist in the new mortgage – are they a lot higher than now – that’s the same as a cost for the future?
When you look at these charges, how much will you be paying to change your mortgage? Many lenders allow you to add this to the borrowing, but then you are paying more interest on them for the duration of the mortgage. Even more outgoings each month!
If you can afford to pay these fees at the time of the move then in the long term that way is going to cost less. But then look at your existing mortgage. If you are having to pay £2,000, maybe even more to swap mortgages, could you instead pay off a small chunk of the mortgage, or at least put that cash away in a high interest account instead? Then take a look at how that would offset your payments – or work out what your net payments are after the money put aside earns some interest.
Changing to a new lender may not always be the right thing to do. First, speak to your bank and see what monthly charges they can get you down to with your existing mortgage. Then, instead of relying on tables to try to compare mortgage rates, speak to a few mortgage brokers and get them to do all of the hard work for you and write down exactly what you will be left paying each month.
Overviewing The Primary Types Of Mortgage Offers On The Market Today
Loads of mortgage holders are currently finding that their existing mortgage products are reaching the end of their period of benefits and are now having to shop around the markets for a remortgage. This is being made tricky because many mortgages are not suitable for all mortgage holders. So if you are desperately trying to compare best mortgage rates of everything available, what are some of the main types of mortgages offersavailable on the mortgage market today?
Fixed Rate Mortgages Offers – this is the most simple idea and a very popular option. For a set period of time you agree with your bank what the interest rates will be that are applied to the mortgage. Once you come to the end of this fixed rate period you may be free to move to other offers within the same bank; you may be able to move to another building society or you may have to stay with your current building society for a the remainder of an agreed term at their variable rate.
The advantage of a fixed rate mortgage is that you are sure exactly what your repayments will be during the term. The disadvantages – well if rates drop more, then your payments are not going to be affected. And if rates do climb, then at the end of the fixed rate period you are going to be in for a rather unpleasant surprise.
Libor Rate Mortgages – these are based around the rate at which building society are lending to each other. At the moment, maybe not a good choice with building societies struggling to lend and borrowing between themselves. But if you feel that the banking situation is improving and don’t want to depend on the central banks offering rate cuts, then this can be a possibility.
Capped Rate Mortgages – this is a mixture of the fixed rate mortgage products and the lender’s standard variable rate. Your mortgage tracks the changes to the lender’s mortgage rates as they would if you were on the standard variable rate, but there is a ceiling to the maximum interest rate the bank will charge you. If interest rates climb above the capped level, you have the security of knowing that your payments aren’t increasing all the way. Better than that, as interest rates drop, so will your repayments. The disadvantage is that the capped rate can sometimes be marginally above the equivalent fixed rate.
Tracker Mortgages – these products tend to alter with the central bank’s interest rate, with a small extra on top. Whenever the base rate is altered the rate you are charged will move. This can be great in a volatile market when the building societies are not following the base rate changes accurately, but watch how much you are paying above the base rate, just in case another type of mortgage is better. Also, you really are at the mercy of the base rates – each time they move your payments alter. And not all of these payment changes are going to go in your favour.
Whatever mortgage products you are considering, make sure that you compare mortgage rates for a few different types of today’s mortgage interest rates and ask a broker to talk you through what is best and make sure that you are selecting the type of mortgage that really is best suited to your needs and financial outlook in life.
Searching For A New Mortgage Is Much More Complicated Now Than 12 Months Ago.
With the best mortgage interest rates currently falling so rapidly, you might be wondering if now is the time to change mortgages to see if you can get yourself a better product, which over the long term will save you money. But is this as quick to do as it was last year? Keith Lunt looks at how complicated this has now become.
Frankly, no. It is now far from easy to find yourself a remortgage offer. The banks have reacted to the current credit crisis by making it far harder to obtain a new mortgage and at the same time many of the lenders themselves are finding it harder to obtain the money they need for lending to home buyers. If they can’t get the money, they then have to further limit what they lend.
Many of the big banks have now taken away their easy going remortgagesand are instead making it much harder for potential borrowers to take out a mortgage. They are putting huge boundaries around their mortgage deals that potential home buyers have to be able to climb before they stand any chance of obtaining a new mortgage.
Aside from the fact that a lot of the building societies have increased the basic remortgage charges, making remortgage far more expensive just to take out, many have taken away deals that would appeal to the home buyers the banks are now worried about not being able to keep up repayments. They are securing themselves for the future by only accepting mortgage requests from those home buyers that they are convinced will always be able to pay back their mortgage. They are protecting themselves from the gamble they once used to take of risky lending in return for a high rate of return.
An example of this that is clear to see is the removal by the lenders of the 125% remortgage. Now you would be struggling to find a building society willing to give you 90% of the house value as a loan. And in a lot of cases, even securing more than 75% of the building value has become extremely difficult.
So what can you do if you want to change mortgage and find a new mortgage rate to save you some cash, and take a benefit from falling mortgage rates? Well you can compare best mortage rates yourself and see what is about, but many of the rates on offer are only available for certain types of home buyers. It is more efficient to approach a local mortgage broker and get them to check mortgage rates for you instead. This need not be a difficult search. Many websites offer this contact service, so you can still effectively do the search over the internet. And by using a free service, you are saving yourself time, and hopefully cash.
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