Mortgage Rate Arrangement Simplified?

When looking for a mortgage, it’s essential to understand the different products that are available so you can be sure you get the right one for you. Lenders offer different interest rate options and this will affect your monthly payments. So choosing the right deal could save you money.

With so many product choices available it is essential you get professional indepenedent advice.

Types of mortgage products available:

Standard Variable Rate Mortgage

With this mortgage, your payments will go up and down as the lender’s standard variable rate goes up or down. Usually any changes in the lenders variable rate will be in line with movements in the Bank of England base rate. The Bank of England Monetary Policy Committee reviews this rate on a monthly basis.

Is it right for me?

Yes – if you can afford to pay more when mortgage interest rates go up and want to take advantage of lower payments if rates fall.

No – if during the early years you would be unable to cope if repayments increased because of rising interest rates.

Base Rate Tracker Mortgage

This is similar to a variable rate mortgage. But the interest rate will go up and down exactly in line with any changes in the Bank of England base rate. Your mortgage payments will go up and down too as the interest rate changes. The tracker period is usually for a specified time, which can be from one year up to the lifetime of the mortgage loan. At the end of the tracker period, your mortgage interest rate will change to the lenders standard variable rate. This product may carry an early repayment charge.

Is it right for me?

Yes – if you want to be sure your mortgage rate falls by the same amount as the Bank of England base rate falls, but the drawback is the mortgage rate also rises in step when the base rate increases.

No – if you find yourself locked into a rate above the base rate, which may be higher than the standard variable rate.

Fixed Rate Mortgage

Your mortgage interest rate is fixed for a set period only, during which your mortgage payments will stay the same. At the end of the fixed rate period, your mortgage interest rate will change to the lender’s standard variable rate. Fixed rate mortgages are usually available for between one and ten years, however they can be available for longer periods depending on market conditions. This product may carry an early repayment charge.

Is it right for me?

Yes – if you need to budget with certainty for the next few years, or you think mortgage interest rates will rise, or both.

No – probably not if you think mortgage interest rates will fall.

Discounted Rate Mortgage

The lender offers a discount off their standard variable rate for a set period, normally one or two years. Your mortgage payments will still vary in line with changes in the standard variable rate. At the end of the discount period, your mortgage interest rate will be the same as the lender’s standard variable rate. This product may carry an early repayment charge.

Is it right for me?

Yes – if money is tight when you first take out the mortgage, but you’re confident your income will increase.

No – if you won’t be able to cope if interest rates rise later on, increasing your payments.

Capped & Collar Rate Mortgages

With a capped rate mortgage the interest rate can go up or down in line with movements in the lender’s standard variable rate, but cannot go above a set upper limit, known as the ‘cap’ or ‘ceiling’. This type of mortgage can also have a set lower limit, known as the ‘collar’. For these mortgages the interest rate can move between these limits but cannot fall below the collar or go above the cap. This product may carry an early repayment charge.

Is it right for me?

Yes – if you like to budget with some certainty, think mortgage interest rates might rise above the cap, or you want the security of knowing your payments cannot rise above a set level and would like to benefit from any fall in interest rates.

No – if your mortgage adviser can find a fixed rate set at a lower rate than the capped rate, and you think rates are unlikely to fall below the level of the fixed rate deal.

Cashback Mortgage

The lender pays you a cash lump sum after completion, which you can use for any purpose. This product may carry an early repayment charge.

Is it right for me?

Yes – if you need a cash lump sum, for example to do up your home, or you expect the cashback to more than compensate for any rises in interest rates during the period when an early repayment charge may apply.

No – if you can manage without a cashback now and can get an alternative deal.

Remember your home may be repossessed if you do not keep up repayments on your mortgage.

Homeowners Lowest Mortgage Rate Dilemma

The Lowest Mortgage Rate in Decades

Homeowners are today missing out on some the lowest fixed mortgage rate deals available in the last twenty four years. On the 9th March 2009 the Bank of England first reduced the base rate to 0.5% where it has remained for the last 31 months and homeowners have become complacent about changing their mortgage arrangements as the mortgage rate has remained static.

Lowest Mortgage Rate Dilemma Faced By Homeowners

Homeowners have preferred to remain on the standard variable rate (SVR) rather than change to any other type of mortgage deal around. In the past the standard variable rate was known as the worst mortgage rate a borrower could be acquire as it was always more costly than any of the other mortgage rates available.

Many homeowners have chosen not to review their mortgages in the last 31 months and one in six homeowners with mortgages does not believe they needed to review their mortgages until the base rate starts to rise. Waiting until the base rate starts to rise is like closing the stable door after the horse has bolted. We have never seen interest rates this low and it is now that homeowners should be seeking the best mortgage deal for their personal circumstances.

Many homeowners have seen their monthly mortgage payments reduce considerably as they have come off previous mortgage deals. The extra money they are saving by remaining on the standard variable rate (SVR) has lessened the effects of the recession on their household income and expenditure. All householders have seen an increase in fuel and food costs and many employees have not had a pay rise for the last three or four years and homeowners don’t want to pay more for a new mortgage arrangement

Mortgage Rate Dilemma Facing Homeowners

Currently the Best 5-year fixed mortgage rate for first-time buyer and remortgages is 4.39% from the Nationwide for a 70% loan-to-value or a 30% deposit plus lenders arrangement fees of £999, you can make over payments of £500 per month and early repayment penalties do apply. Furthermore if you are remortgaging then this great 5-year fixed mortgage rate deal comes with free valuation fees and legal fees which will save you thousands.

Surely every serious homeowner who is worried about the future of their mortgage payments would want to tie themselves into a great mortgage deal that would provide them with 5 years of stability and the knowledge that they had a fixed affordable monthly mortgage payment? But unfortunately that is not the case when you have the cheapest mortgage deal from HSBC – a 2-year discount mortgage rate deal that is linked to their Standard Variable rate (SVR) which currently stands at 3.94% plus a 1% product fee. Please note that you will need a perfect credit history and be able to meet their strict lending criteria to obtain this mortgage

The Mortgage Rate Will Rise

Homeowners are out of touch with the current mortgage market conditions and they have a belief that the Bank of England base rate will remain low for ever. It’s similar to the belief that everybody had that property prices would just keep going up and then the boom time went bust in August 2007.

The mortgage rates we currently have are unprecedented and there are winners and losers. The winners at the moment are the mortgage borrowers who were reported to have saved fifty one billion pounds whilst the savers had lost some forty three billion pounds. This discrepancy will need readjusting at sometime in the very near future without doubt. As inflation rises higher then the bank of England will want the mechanism of being able to increase interest rates to control the inflation.

However homeowners still have the lowest mortgage rate dilemma and they will need to be sure that they are able to move quickly and secure another great rate before the rates increase.

Factors That Affect Your Mortgage Rate

There are going to be many factors which affect your mortgage rate, some of which are under your control and others which you can do nothing about. You should be aware of all of the factors which might affect your mortgage rate and take them into consideration before applying for a mortgage loan. You can take steps to improve some of the factors which affect your mortgage rate and make decisions about when is best to apply based on basic knowledge about your mortgage.

What is a mortgage?

Most people understand the basic definition that the mortgage is a loan which is used to purchase a home. There is slightly more to the mortgage than this. The mortgage is a loan which uses the property itself as collateral. If you fail to make the payments on your mortgage, the property may be taken over by the lending institution who has given you the mortgage.

You want the best mortgage rates

The mortgage is a long-life loan meaning that it is not going to be fully repaid for many, many years. A standard home mortgage is often a fifteen or twenty year loan. This means that you want the best mortgage rate possible because you are going to be needing to pay this rate for a long, long time.

Factors affecting mortgage rates

Major factors affecting mortgage rates include:

o Amount of down payment on mortgage
o Consideration of closing costs
o Income of mortgage borrower
o Life of mortgage loan
o Life of mortgage rate
o Total mortgage loan amount
o Whether or not the mortgage rate is adjustable

Factors making up a desirable mortgage rate

The basic premise of the desirable mortgage rate is that it is within your budget, has a low interest rate and is paid back as quickly as possible. How all of this plays out in terms of each individual mortgage depends upon the independent factors of each borrower. For example, you might prefer a fifteen-year mortgage loan to one that is paid over thirty years. This will allow you to save money over time because you pay less in interest. However, if you can not afford the higher monthly payments and you default on the mortgage loan, you have not helped yourself out any.

Negotiating a desirable mortgage rate

The simplest method of achieving a desirable mortgage rate is to work with a mortgage broker. You will have to pay up front fees to the mortgage broker, usually at the time when all of the closing costs are paid on the home purchase, but you will save money and time in the long run. The mortgage broker plays the role of assessing your personal financial situation and working with lending institutions to negotiate the best possible mortgage rate for your situation. The mortgage broker has experience with all of the factors and terms used in the mortgage loan negotiation and can use this expertise to your benefit.

Repayment of the mortgage loan

When you are working out a plan of repayment for the mortgage loan, you should look at the amount of money available for down payment, the amount you can reasonably pay on the loan each month, the grace period of any adjustable mortgage loan interest rates and any fees owed for early repayment of the mortgage. Working with the mortgage broker, you should be able to develop a repayment plan for your mortgage which allows you to purchase and remain in your home through the life of the loan.