Fixed Rate Mortgage
Mortgages. Exit Fees To Be Capped.
In the last 3 to 5 years we have seen rises of up to 450% in the exit fees charged by lenders when borrowers redeem their mortgage. But at last the Financial Services Authority (FSA) ha seen the light and is going to crackdown on these increases.
Lenders have been telling new borrowers about the exit fees currently charged, but the lender has retained the right to increase those charges at any time and without advising borrowers. This amounts to a free hand to increase these charges and many lenders have taken the opportunity gladly.
Take the Woolwich for example; they’ve increased their exit fee from what was 95 to 275. The Cheltenham & Gloucester has increased theirs from 50 to 225. The lenders have clearly been trying to penalise those of us who regularly switch their mortgage to get the best interest rates the so called rate tarts and at the same time line their coffers.
However, the FSA is now in talks with the mortgage lenders to bring them to heal. The FSA wants fees to be fully disclosed at the outset and for the disclosed exit fee to be fixed for the duration of the mortgage. The FSA hopes to have agreed a binding undertaking from the lenders by June this year.
On a wider front, borrowers should always remember to take into account all the charges and money saving offers when working out which mortgage is cheapest for them.
To illustrate this point, let’s say you wanted a 2-year fixed rate mortgage and were attracted by the offers from the Northern Rock and the Halifax.
Northern Rock currently charges an interest rate of 4.19% plus a 1.5% arrangement fee and an exit fee of 250. Halifax’s interest rate is 4.39% with an arrangement fee of 499 and exit fee of 175. Within Halifax’s package there’s also a free valuation and free conveyancing that typically could save around 750. So which mortgage deal is the cheapest?
Taking a 25 year repayment mortgage for 100,000 and costing it over the first two years with redemption at the end of the second year, The Northern Rock comes out at 14,671. The Halifax comes out at 807 cheaper at 13,864. And this saving doesn’t take into account the extra 750 valuation and legal savings offered by the Halifax. Therefore, assessed on this basis, the 4.39% headline rate offered by the Halifax is in fact the cheaper deal.
Another issue that will affect the true cost of your mortgage is whether the interest is charged on a daily, monthly or annual basis. On an otherwise like for like basis, annually calculated interest will always work out more expensive because for 11 months of the year, you are charged interest on money you have already repaid.
The best advice is to read all the small print! And remember that the lenders use all sorts of words to describe charges – application, arrangement, reservation, booking, completion and early redemption are all words to described charges or fees. Keep your eyes skinned!
Mortgage Refinancing Basics
Your mortgage may have a 30-year term, but not many homeowners stay with the same loan for that long. In fact, the average American refinances his or her mortgage every four years, according to the Mortgage Bankers Association. Thats because paying off your present mortgage and taking out a new one can mean big savings over several years. However, refinancing comes with a price in the short term, so its important to consider both the costs and benefits before making your decision.
Why refinance?
Here are some reasons to consider refinancing your mortgage:
1. To obtain a lower fixed rate. If you took out a fixed-rate mortgage several years ago and interest rates have since dropped, refinancing may lower your payments considerably. A 150,000 mortgage with a 30-year term and a rate of 8 percent, for example, carries a monthly payment of 1,100. The same mortgage at 6 percent will have a payment of less than 900 a month.
2. To switch to a fixed rate or an adjustable rate mortgage. Adjustable-rate mortgages (ARMs) offer lower interest rates initially, but some homeowners find the fluctuations stressful. If rates are on the way up, you might consider locking in at a fixed rate and consistent monthly payment. On the other hand, if you want to reduce your monthly payments and are comfortable with the interest rate changes of an ARM, it could save you money to refinance to an ARM.
3. To reduce your monthly payments. Refinancing for a longer term will lower the amount you have to pay each month. You will end up paying more in interest charges over the life of your loan, but if youre having difficulty making your current payments, this strategy could provide some relief.
4. To turn home equity into cash. You may want to take out a new mortgage with a larger principal, in order to turn some of your home equity into cash for a major expense. This is called cash-out refinancing. The advantage of taking out a loan secured by your home is that you can get a lower rate of interest than you can with an unsecured loan or credit card. However, if the interest rate offered for your refinanced mortgage is higher than your current rate, a home equity loan or line of credit might be a better choice.
Is refinancing right for you?
If youre refinancing in order to pay less interest, you wont usually see the savings right away. Thats because lenders typically charge fees when you take out a new mortgage, and you may also have to pay a penalty for getting out of your old one. To determine whether refinancing makes financial sense for you, consider these issues:
1. How long you plan to be in your home. If you expect to move in a year or two, you may never realize the potential savings youd get from refinancing. As a rule of thumb, the longer you plan to stay in your current home, the more sense it makes to refinance.
2. The prepayment penalty on your current mortgage. Many mortgages carry a penalty if you pay them off early. The amount varies, but it is usually a small percentage of the outstanding balance, or several months worth of interest payments.
3. The costs of the new mortgage. When you take out a new loan, your lender may charge a number of fees including application, appraisal, origination and insurance fees, plus title search, insurance and legal costs that can add up to thousands of pounds. Lenders may also charge discount points, which are paid upfront to secure a lower interest rate. As a guideline, expect fees to eat up any potential savings unless your new interest rate is at least a half a percentage point lower than your current one.
To learn more about mortgage refinancing and when it makes sense, visit http:www.lendingtree.comcecyourhomeyourmortgagemortgage-refinance.asp
Mortgage
A mortgage is a practice by which the ownership of the property is passed from the mortgagor, to the mortgagee, in return for the loan of the money, the mortgagee is the lender and the mortgagor is the borrower. The mortgagee has limited rights on the property until the loan is paid off. Most probably the mortgage loan is taken for home improvements, or financing college education. The interest rate for mortgage loan varies depending on the type of the loan
Mortgage banks and Mortgage brokers are the best options for reviewing of mortgage loan applications.
For Mortgage banks, the staff of the bank will process the loan application, as most of the banks are controlled by the government agencies, the borrower can be assured that the mortgage loan will be approved and granted by reliable sources and there will be no discontinuation in the loan. The bank will provide a range of mortgage service providers for a particular loan application, and the borrower should select the best available option from them. The borrower should deal with the service providers, compare each of the interest rates and select the best option. The loan application will be processed much faster by bank staff.
Mortgage brokers will present the best available option for a particular loan; the brokers will provide the best option for a loan application that meets the borrowers’ needs. If the loan product is selected, then the borrower should deal directly with the service provider to finish the formalities. Most of the information on loan products of mortgage service providers will be available with the mortgage brokers.
The borrower before using the services of the brokers should verify whether the mortgage broker is registered with any reliable company or service.
Mortgage loan types
There are many types of mortgage loans available in the mortgage industry, but the two most common types of loans are Fixed Rate Mortgage (FRM) and Adjustable Rate Mortgage (ARM).
For fixed rate mortgage, the interest rates are fixed and are high, the rates will not change during the life of the loan, the repayment time ranges from 10 to 20 years.
For adjustable rate mortgage, the interest rate fluctuates with respect to a standard market index, it will increase or decrease with respect to the index, the borrower cannot predict the interest rate for the next interest period before hand, if the interest rate increases, the borrower has to pay the extra cost, to avoid this, some lenders offer interest lock, using this, the borrower will repay the debt on a fixed interest rate for a particular period, the lender will charge extra money for this service. The repayment time ranges from 5-10 years.
The borrowers who borrow fixed rate mortgage loans are more financially secure than who borrows adjustable rate mortgage loans. The proceeds from adjustable rate mortgage negates any risk and most of the borrowers’ uses this loan as repayment mode.
Presently the mortgage markets in Asia are growing mush fast than the developed countries. In Asia, India has the second highest interest rate of 7%.In UK, interest rate for a 15-year fixed rate mortgage loan (FRM) is 12% and for 30-year adjustable rate mortgage is 15%.For a 1-year adjustable rate mortgage loan (ARM) is 4.05%.