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.

What You Need to Know About Mortgage Rates

Mortgage rates involve a number of factors and it is helpful to have a better understanding of how they work before choosing a mortgage.

Mortgage Rate vs. Annual Percentage Rate (APR)

To put it simply, the mortgage rate is the rate of interest charged on a mortgage. In other words, it is the cost involved in borrowing money for your loan. Think of it as the base cost. Mortgage rates differ from the annual percentage rate (APR). The mortgage rate describes the loan interest only, while APR includes any other costs or fees charged by the lender. The US Government requires mortgage lenders to provide their APR through the Truth in Lending Act. It allows consumers to have an apples to apples comparison of what a loan will cost them through different lenders. Keep in mind that lenders may calculate APR differently and APR also assumes you will hold the loan for its full amortization so it is still important to carefully compare and consider when selecting a loan.

How is the Mortgage Rate Determined?

First, the Federal Reserve determines a rate called the Federal Funds Rate. The Federal Reserve Bank requires that lenders maintain a percentage of deposits on hand each night. This is called the reserve requirement. Banks will borrow from each other to meet their reserve requirements. When the Federal Funds Rate is high, banks are able to borrow less money and the money they do lend is at a higher rate. When low, banks are more likely to borrow from each other to maintain their reserve requirement. It allows them to borrow more money and the interest rate goes down as well. The interest rates fluctuate with the Federal Funds Rate because it affects the amount of money that can be borrowed. Because money is scarcer, it is more expensive.

Also, when the Fed decreases their rates, we tend to spend more. Because loans are more inexpensive, people are more likely to use them to invest in capital. Also, because interest rates are low, savings accounts are reduced because they are not as valuable. This creates a surplus of money in the marketplace which lowers the value of the dollar and eventually becomes inflation. With inflation, mortgage rates increase so the Fed must carefully monitor their rate to ensure that our economy remains level.

Basically, the Federal Funds Rate is a large determinant of what the mortgage rate will be on a given day. And the Federal Funds Rate is largely determined based on the market including factors such as unemployment, growth, and inflation. However, there is no single mortgage rate at a given moment that every borrower will pay. This is because there are also other factors which determine an individual’s mortgage rate, and why they different people will have different rates.

Individual Determinants

There are several things that a lender can examine when determining your mortgage rate. One key factor is your credit score. A higher credit score makes you less risky to lend to and can significantly improve the rate you have to pay. You can also purchase “points” which are pre-payments on your loan interest. Speak with your lender to discuss points and how they might affect your loan. Finally, the amount of down payment can also change the interest rate. Typically, if you have more money up front, you have to borrow less, and you reduce the risk for the lender and your cost for the loan.

Mortgage rates are generally changing daily. Some lenders will stabilize their rates more than others, but it is always wise to compare rates between lenders at the same time and on the same mortgage type. It is also important to know that when a lender provides you with a rate, it is not a guarantee that tomorrow, the rate will still apply. Until you have chosen a mortgage and lock your rate in place with the lender, fluctuations can occur. As with any financial decision it is important to do your research and understand what you are getting into. It’s always wise to consult with your lender for personalized advice.

What You Need to Know About Mortgage Rates

Mortgage rates involve a number of factors and it is helpful to have a better understanding of how they work before choosing a mortgage.

Mortgage Rate vs. Annual Percentage Rate (APR)

To put it simply, the mortgage rate is the rate of interest charged on a mortgage. In other words, it is the cost involved in borrowing money for your loan. Think of it as the base cost. Mortgage rates differ from the annual percentage rate (APR). The mortgage rate describes the loan interest only, while APR includes any other costs or fees charged by the lender. The US Government requires mortgage lenders to provide their APR through the Truth in Lending Act. It allows consumers to have an apples to apples comparison of what a loan will cost them through different lenders. Keep in mind that lenders may calculate APR differently and APR also assumes you will hold the loan for its full amortization so it is still important to carefully compare and consider when selecting a loan.

How is the Mortgage Rate Determined?

First, the Federal Reserve determines a rate called the Federal Funds Rate. The Federal Reserve Bank requires that lenders maintain a percentage of deposits on hand each night. This is called the reserve requirement. Banks will borrow from each other to meet their reserve requirements. When the Federal Funds Rate is high, banks are able to borrow less money and the money they do lend is at a higher rate. When low, banks are more likely to borrow from each other to maintain their reserve requirement. It allows them to borrow more money and the interest rate goes down as well. The interest rates fluctuate with the Federal Funds Rate because it affects the amount of money that can be borrowed. Because money is scarcer, it is more expensive.

Also, when the Fed decreases their rates, we tend to spend more. Because loans are more inexpensive, people are more likely to use them to invest in capital. Also, because interest rates are low, savings accounts are reduced because they are not as valuable. This creates a surplus of money in the marketplace which lowers the value of the dollar and eventually becomes inflation. With inflation, mortgage rates increase so the Fed must carefully monitor their rate to ensure that our economy remains level.

Basically, the Federal Funds Rate is a large determinant of what the mortgage rate will be on a given day. And the Federal Funds Rate is largely determined based on the market including factors such as unemployment, growth, and inflation. However, there is no single mortgage rate at a given moment that every borrower will pay. This is because there are also other factors which determine an individual’s mortgage rate, and why they different people will have different rates.

Individual Determinants

There are several things that a lender can examine when determining your mortgage rate. One key factor is your credit score. A higher credit score makes you less risky to lend to and can significantly improve the rate you have to pay. You can also purchase “points” which are pre-payments on your loan interest. Speak with your lender to discuss points and how they might affect your loan. Finally, the amount of down payment can also change the interest rate. Typically, if you have more money up front, you have to borrow less, and you reduce the risk for the lender and your cost for the loan.

Mortgage rates are generally changing daily. Some lenders will stabilize their rates more than others, but it is always wise to compare rates between lenders at the same time and on the same mortgage type. It is also important to know that when a lender provides you with a rate, it is not a guarantee that tomorrow, the rate will still apply. Until you have chosen a mortgage and lock your rate in place with the lender, fluctuations can occur. As with any financial decision it is important to do your research and understand what you are getting into. It’s always wise to consult with your lender for personalized advice.