Mortgages And Interest Rates
Mortgages In General
Since the Economic meltdown, it has become more difficult to obtain a mortgage. You will need a slightly less than perfect credit history and at least a 10% deposit. Even then, if you meet the required criteria, you will need to find out as much as you can about every detail before you sign on the dotted line. So getting a mortgage with bad credit will not be as easy as you think.
How Do Interest Rates Affect My Mortgage?
Interest rates will affect repayments on any mortgage, sooner or later. Once you have decided what type of repayment option you would like to take up, you must then decide the interest rate option you want to work to. It could be a good idea to compare mortgage rates before you dive in head first. The various types of mortgages are explained below:
Capped Rate: If your mortgage interest rate increases above your capped rate, your repayments would not increase in accordance with this. However, if the interest rates fall below the capped rate your repayments will decrease accordingly. Bearing in mind, after a set period of time your mortgage will revert to the standard variable rate.
Variable Rates: This means that your repayments will fluctuate, usually according to the current interest rates, which is called a base rate tracker. A discount mortgage is also variable but priced in line with the lender's Standard Variable Rate, which is generally linked to the base rate but ultimately can be pitched at any level. In recent history, the base rate has seen highs of 15% and lows of 0.5%.
Fixed Rate: A fixed rate means exactly what it says. The lender will give you a mortgage with a fixed interest rate for an agreed period of time. This is a good thing if you think the mortgage rate is going to increase, but be aware of a big increase in your repayments when the fixed rate term ends and you revert onto your lender's standard variable rate. The downfall is if the mortgage rate decreases below the rate that you are fixed at, you will not benefit from the decrease in interest rates.
Should I Repay My Mortgage Early?
If you come into a significant amount of money or your financial situation changes for the better, you may consider the option of paying off all, or part of your mortgage early. This could save you thousands of pounds in interest, leaving you debt free and give you security and peace of mind.
You could pay off a lump sum, usually known as a capital repayment, or make regular additional payments. However, the amount that the lenders accept for all overpayment varies, and with fixed term and discount mortgages you may suffer product-related charges. Flexible mortgages do not impose any early repayment charges at all.
Bear in mind, also, that some lenders do not credit extra monthly repayments until the end of the charging year and give no allowance on interest payments in the meantime. This is called annual interest calculation and it would not work in your favour. If your fixed rate mortgage is coming to an end, it's important to consider the financial implications. There are other options that should be considered before making a capital repayment of some of your mortgage. If you come into a considerable amount of money, it would be best to seek advice from an independent financial advisor.
What If I Want To Change My Mortgage Provider? Remortgaging
You may find that after the initial special interest deal is over, your monthly repayments could actually be cut if you moved lenders. This is called remortgaging. When changing lenders, check what fees your old mortgage lender might charge for early redemption if you are still within the deal rate period. You may also have to pay a new set of arrangement fees with the new lender.
Again before making any decisions it is advised to compare remortgage rates with various lenders first. If you want to change your mortgage but stay with the same lender (sometimes known as a product transfer), you should seek advice from your lender about the different options available to you.
Coming Off A Fixed Mortgage Interest Rate
If your fixed rate mortgage is coming to an end, it's important to consider the financial implications. When coming off a fixed rate mortgage your monthly repayments might go up if the lender's standard variable rate is now set higher than the rate you were paying.
It is therefore imperative that you plan ahead to make sure you can afford the higher payments. Check when your fixed rate mortgage term will finish and find out how the new interest rate will be calculated in advance so you can start saving to counteract any financial implication this may have on you. If you're worried about being able to afford the increase in repayments, talk to your lender, as they may be able to offer a better deal.
Other Costs, Fees And Charges To Consider
Buying a house or flat is not a cheap or easy process. You should be careful when you arrange your mortgage and take into account various other fees that you are going to incur. These include Stamp Duty, solicitors' fees, land Registry, valuation fees and building and contents insurance and valuations, as well as the overall costs of moving house. If you are a first time buyer click here to read my other hub on mortgages for first time buyers.If you would like to visit my website to find out more about mortgages and homeowner loans please click here