Ultimate Guide To Forex Trading

Mortgage interest rates. Nothing but mortgage interest rates.

These phrases have almost hypnotised us for two years come Summer 2009. We’ve heard them so often and seen interest rates come down so far, we automatically think a mortgage product with a lower rate of interest is better than any other with a higher rate. For the most part, this is true – mortgage interest rates are “WYSIWYG” i.e. “What You See Is What You Get”). But not always.

Recently, newspaper advertisements and online advertisements in particular were grabbing the headlines with statements similar to the following:

“Massive Rate Reduction to 2.51%”

“Remortgage Now at the Lowest Rates Possible – 2.83%”

“Get this 4.09% fixed rate now before it disappears”

Although the mortgage rates shown above are just examples that have been adapted from real world advertisements, they are most definitely headline grabbers. Whether they be shown online or offline, at least one of these mortgage interest rates is likely to catch our attention.

The above advertisements go some way to helping us remember that mortgages are sold like most other products. The interest rate is used to grab the headlines and get our attention. The interest rate HAS to be real of course (otherwise big trouble for the advertiser) but there are a number of criteria from the lender that so easily prevents us from getting such a low rate of interest.

Consider the recent headline-grabber rate of 2.29% that was withdrawn from the market late March (09).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.

The rate could afford to be set that low because it was only fixed at that level for one year but you had to keep the mortgage for three years. This is fine for someone that wants or needs to increase the amount of cash available to them every month in the SHORT term. For example, you have a strong credit history but just need to get through a current financial strait such as clearing a credit card, or you wish to rebuild some savings over a 12-month period.

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.

True, it’s anybody’s guess when rates will rise again but we do know that lenders are predominantly offering the very lowest rates for the shortest possible timeframes, mostly 2 years or less (such as the one above). If you want a longer timeframe with a fixed-rate, be ready to pay a premium of 1% and more. Lenders, themselves, see considerable risks for the next 2+ years and have hedged their bets by offering variable-rate products in one form or another (e.g. Trackers, Capped-Rate and Standard Variable Rate).

The ultimate goal for anyone borrowing money is to get the most they need or require at the lowest possible rate of interest. This is true of all loans whether it be mortgages or any other loan for that matter. If there is a difference when it comes to mortgage interest rates and the “cheap” interest rates being advertised, it’s because a mortgage concerns our homes – the very roof over our head. That’s why it’s absolutely vital to look past the headline-grabbing mortgage rate and see if the product itself delivers what you need. Whether you do this on your own or with a mortgage adviser is a matter of personal choice for you. Just be sure to check the product very carefully, not just the mortgage interest rate on immediate display.