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Business Real Estate Mortgage Interest Rates - Why Lowest Is Not Always Best
Business Real Estate Mortgage Interest Rates - Why Lowest Is Not Always Best
| Mortgage Interest Rates - Why Lowest Is Not Always Best |
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| Written by ODFR Team |
| Tuesday, 14 April 2009 07:56 |
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Interest Rates ... Interest Rates ... Interest Rates. They have dominated our newspaper frontage, television time and party talk for the last 18 to 19 months. And we have been lulled into the belief that a lower interest rate is automatically better than a higher interest rate. Yet many of us are fast learning that this is not always the case. What we see is NOT what we, always, get. Recently, newspaper advertisements and online advertisements in particular were grabbing the headlines with statements similar to the following: "Massive Rate Reduction to 2.51%" "This 2.38% tracker is unbeatable" "Try this Tracker of 2.2% Before It Goes" Admittedly, the ads shown above are slightly tongue-in-cheek in the wording used but the rates themselves are VERY close to those being seen by consumers with mortgages. These advertisements are, actually, a sobering reminder that mortgages are products that still require salesmanship and marketing skills. Like other products for other industries they must still be sold. But as attractive as these low interest rates are and as keen as we might be to secure such a mortgage rate, a lender's criteria can keep the door closed on us. Consider the recent headline-grabber rate of 2.29% that was withdrawn from the market late March (09). Everybody wanted it - from mainstream residential borrowers to buy-to-let investors with an adverse credit history. Bizarrely, they all thought they could get it judging by the increased enquiries mortgage advisers received for the product. Yet this same 2.29% interest rate from a High Street lender was one hell of a demanding mortgage product i.e. you had to be someone with a massive deposit of 40%, spotless credit history and above all ? a willingness to accept 2.29% for just 12 months whilst being locked-in to the mortgage for a further 2 years. That's why the initial interest rate was that low. If you had a truly short-term financial "hump" to get over for the coming year AND you could meet the strict lending criteria, then the product was a match made in heaven. For example, on a mortgage of 150,000 and an interest rate of around 4%, you would have been saving more than 210 Pounds every month (or 2,520 Pound for the year). Maybe this product would have suited many women in the UK with mortgages that also wanted to clear a credit card balance rather urgently. According to Abbey Credit Cards, the average credit card balance held by UK women and the saving this mortgage product gave were roughly the same. With base rates being at an all-time low and approaching zero percent, mortgage payments are great for mortgage borrowers ... for now. But what about the medium term of approximately 2 - 3 years? The attractiveness of a fixed-rate becomes clear when it looks as though mortgage interest rates can only go up when they start to move again. From the start of the 2nd year of the mortgage there is considerable interest rate risk to think about before taking this product or any such mortgage with similar features. Yet the mortgages attracting the lowest fixed rates right now also have the shortest timeframes too, such as 2 years or less (similar to the one mentioned above). This gives us some insight into how lenders currently view the short to medium term - they too see interest rate risks for the next 2 - 3 years as the mortgages with the lowest rates AND the lowest fees are based on a variable rate (e.g. Variable Capped, Variable Tracker and Standard Variable Rate itself). Mortgages may well be tightly regulated products but they still need to be sold to us as consumers. They DON'T sell themselves. Lenders have been selling them for a very long time and know that we're all seeking the lowest monthly payment on our mortgages. As with any product from any other industry, "cheap" almost always comes at a price. Thoroughly investigate the cheap, low, headline grabbing interest rates first or do so with the help and assistance of a knowledgeable adviser. Otherwise, that 100 Pounds you think you're saving now, could easily turn into a 200 Pounds monthly loss and a hefty penalty to exit a mortgage you no longer want. About the Author: Learn more about mortgages and interest rates and their impact on your financial decisions. Go to the Opening Doors Financial Research website. An associate mortgage adviser is waiting to help you Kindly provided by MoneyHunter.org You are welcome to use this article on your own website, if you include the link just before this text. |
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