Discover More - When Changing Mortgage Rates May Not Be The Best Way To Saving Expenditure
Author: Kay Huna
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Let’s take a look at the pros and cons of each type of mortgage. A fixed rate mortgage, also called a conventional mortgage carries an interest rate that does not change over the life of the loan.
A fixed rate mortgage has the benefit of a predictable payment and locks you in to today’s interest rates for the future. Because interest rates are low now but predicted to rise in coming years, you should definitely consider this aspect of the fixed rate loan to be a benefit.
Variable rate mortgage loans have benefits as well. Typically, the initial five or ten years of an adjustable rate loan carry an interest rate that is lower than that of a fixed rate loan. It is after that time that the adjustable rate loan adjusts its rates to be in line with the current prime rate.
That said, there are several different types of ARM’s and the specifics of how interest rates are handled are different for each type vary.
In order to choose the best mortgage for your circumstances and lifestyle, you must ask yourself a few questions. First, how long do you plan on living in the home?
The average family moves every seven to ten years. If you do not plan to live in your home for very long, you may be better off with the lower rates offered to you during the initial period of an ARM.
If you can reduce your monthly mortgage outgoings by 0.5% then you could be saving yourself a lot of monthly expense.
This could be a saving that you can spend elsewhere or if you are unlucky and expecting a huge rise in mortgage repayments, just a reduction in the increase of the monthly cost.
Mortgage comparison tables tell you what remortgage is the charges the least on the market today, but is it available for you?
AND, will it actually reduce your outgoings in the long term?
Yes, interest rates have fallen at the moment and are expected to continue this way for some months, some analysts believe a drop is on the cards in the near future.
Locking into a 2-year, 3-year or longer fixed term mortgage, by the end of the term you might be paying more than a variable remortgage if you had continued as you are.
On the other hand, we may be surprised by a recovery and interest rate rises 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 paying 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 exiting that? There may be exit and deed release fees. These fees may also exist in the new mortgage - are they a lot higher than the current mortgage - that’s the same as a cost for the future?
If you can afford to pay these fees at the time of the move then in the long term that way is going to be cheaper. 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 bank 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 compare the best mortgage rates, speak to a few mortgage brokers and get them to do all of the calculations for you and write down exactly what you will be left paying each month.
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