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Variable Rate Mortgages

December 27, 2009

The use of variable rate mortgages has increased and more and more people are using this strategy. This strategy, by its nature (variable), is about taking a risk that must be assumed but in recent years it has shown very good results.

Description

The interest rate on a variable rate mortgage changes with the base rate of the Bank of England. The lender does not give you a fixed rate but a discount off the basic rate. For this reason, variable rates are expressed as the base rate less a percentage.

Example: “if the rate is based on base rate minus 0.90% in this case, if the base rate is 6.00%, the customer will pay their mortgage rate of 5.10% (6.00 - 0.90%) for this period of time. Some time later if the base rate is 5.25% then the mortgage rate of the mortgage will be 4.35% (5.25% - 0.90%) for this period. The Bank of England sets the interest rate every month. That does not mean that the rate will change 12 times but its more a review and a decision of whether the rates need to change, and deciding on a new rate if the rates need to change.

Advantages Of Variable Rates Mortgages

Historically, this is a very good strategy, especially when rates are stable or decreasing. This strategy allows borrowers to:

  • Take advantage of rates that go down during the term of the mortgage.
  • Payments are usually lower.
  • Available from many lenders.

Disadvantages

  • Rates are variable, so they can ascend or descend (a risk factor).
  • Payments vary with interest rates.

When Using The Long-Term Strategy

It is clear that the variable rate is a good choice when the rates tend to go down or are stable. Since it is difficult to know for certain which way the rates are headed, if you take a variable rate mortgage, you will have to keep a close eye on the trend of interest rates every month.

All products offer a variable rate has also an option to convert the variable rate to a fixed rate. It is a fairly easy process: you call the lender and you tell it to convert your loan to a fixed rate.

Caution: Lenders Increase Rates When You Switch To Fixed Rates

If you see that the interest rates are rising and you wish to change your mortgage from a variable to a fixed, you need to take account of the fact that the fixed rate offered will usually be higher. When someone wishes to convert a mortgage from a variable rate to a fixed rate, lenders are usually known to increase the fixed rate offered to a borrower.

How To Stay Updated On The Movement Of The Base Rate?

Due to the fact that your mortgage rate varies with the base rate, it is important to keep an eye on the base rate. Keep note of the following points to track the interest rates:

First, the base rate may change as much as 12 times a year. When the Bank of England adjusts its policy rate this news is usually disseminated to all mass media (newspapers, radio and television). Your mortgage broker will also have first hand knowledge of the interest rates so keep in touch with your broker and keep an eye on the media. The interest rate announcement is usually made on the first Thursday of every month by the Bank of England.

Consider A Variable Rate With Ceiling

Some lenders offer variable rate with a ceiling. That is to say that if variable rates rise above the ceiling rate, your mortgage will be adjusted so that your rate is equal to the ceiling. Your maximum rate therefore, is the maximum rate for your mortgage.

Conclusion

The strategy of variable rate is often an option that must be examined carefully. Several thousands of pounds can be saved as a result of the right choice. Consider the following 2 tips before choosing your variable rate mortgage:

  1. Choose a variable mortgage with the right lender. There are so many variations in the variables rate mortgages.
  2. Stay up to date on interest rates or make sure your broker is in contact with you to advise you.
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Mortgage Broker Expertise

December 26, 2009

A mortgage broker with the right expertise is an important factor that should be considered when choosing a mortgage broker [See: Choosing a mortgage broker]

Over the years, many mortgage lenders have added or changed dozens of mortgage products. There are hundreds of mortgage products available for borrowers and trying to choose the right mortgage product can be daunting. Choosing mortgages is a full time job. It requires the mortgage broker to know all the options, products and strategies in the mortgage market today.

Some signs of an expert mortgage broker

When you contact a mortgage broker, look for signs to determine how knowledgeable the broker is likely to be. Pay particular attention to the following:

  1. He does not speak only of a mortgage product (eg 5 year fixed), but several opportunities to handle the mortgage strategy.
  2. He knows the factors that influence the rise and fall of interest rates and can explain clearly the current situation in the cycle of interest rates.
  3. He knows all the products offered by all lenders in the market and can easily compare. As an example, the best variable rate of 5 years is with the lender XYZ because … while the best mortgage line of credit is offered by ZYX because …
  4. He is able to compare the best rates available for each lender and at the same time you can select one with the best offer.
  5. The broker tries to understand your situation and your goals.
  6. He shares with you ideas about how your mortgage may be repaid quickly.
  7. He is authorized by the Financial Services Authority (FSA)
  8. He works for a company that has a good volume of business
  9. He explains clearly and easily the concepts and ideas of more advanced mortgages
  10. A new trend in the mortgage market is to see more and more mortgage brokers who specialize in a certain market area.

There are specialists for:

  • Mortgage customers who have a good credit score.
  • Bad credit mortgage clients with less than perfect credit history.
  • Mortgages for construction.
  • Mortgages for residential property buyers
  • Buy to let mortgage specialists
  • Commercial mortgage specialists

The fact that some consultants specialize enables them to better understand the nuances and details of specific mortgages and can better understand a strategy and products available in that specific mortgage market.

The expertise of your mortgage consultant will be a big benefit for your property purchasing strategy and could help you save thousands of pounds.

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Mortgage Broker Integrity

December 26, 2009

An important part choosing a mortgage broker is to ensure that the mortgage broker has integrity. [See: Choosing your mortgage broker]

Integrity in a person is defined as: “Good character, as a person of integrity, incorruptible, whose conduct and actions are beyond reproach.” A mortgage broker with integrity will put your interest before their own and the lender

If you have any doubts about your mortgage broker then keep looking for another mortgage broker. You must have confidence that the advice or recommendations he/ she gives you is good for you (not him/ her!)

Finding a mortgage broker with integrity

When you are searching for a mortgage broker and are in the selection process, the first step is to have a telephone conversation with the mortgage consultant and see if he/ she listens to you without saying exactly what you want to hear. (Example: Do not tell the broker that you are looking for “the best mortgage rates for 5-year fixed” but instead ask him/ her of their recommendations for a mortgage). Let him/ her speak and answer your questions. A good adviser will probably start by understanding your situation and your goals to be able to advise you properly.

More than a product or an interest rate

If your broker speaks instantly of an interest rate or product (5 years fixed, a line of credit mortgage or even a variable rate mortgage), he/ she is probably too focused on a quick transaction rather than a long term relationship. The biggest savings come from little things over the years. Your advisor should be able to give good advice to pay your mortgage more quickly (and save interest) without putting strain on your budget.

A good mortgage consultant will probably have several solutions (preferably with several lenders) custom made for you. The best mortgage consultants have even developed several strategies they use with mortgages to save money for their customers.

All these are signs of integrity to the profession – he/ she tries to save you money

A long-term relationship

Find a mortgage broker who has a management approach to your ongoing mortgage needs. Such a broker will contact you annually to review your situation, check your mortgage strategy and give you advice.

Advisors who want only a quick transaction are easy to find, but a good advisor who is in touch year after year are in a class of their own.

  • In summary, take time to find a mortgage broker who:
  • Does not look only for a fast mortgage product,
  • Does more than just shop for interest rates,
  • Has no conflict of interest with you

Helps you save money with a good mortgage strategy

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Choosing a Mortgage Broker

December 26, 2009

Choosing your mortgage consultant?

The repayment of a mortgage is a “sport” of endurance. There are several strategies that can help you gain (paying less interest). A good mortgage consultant is an important asset who can help you get a good mortgage with a good mortgage strategy helping you year after year to pay off your mortgage faster without changing your standard of living.

Finding a good adviser does not have to be rocket science. It is like hiring an employee who works for you. If you plan to pay your mortgage in 15 years or 25 years, your mortgage professional will be there to help.

Here are some considerations that can help you find a good mortgage consultant.

Types of mortgage consultants

There are 2 main types of mortgage consultants who each have their strengths and weaknesses:

The representative of the bank branch offers products from a single lender, is responsible for several tasks including mortgages and is an employee with a possible annual bonus.

The mortgage broker: Offering products from several lenders, specializes in mortgages and works only on commission (paid by the lender) and some charge an additional one off fee.

Factors to consider when choosing a mortgage broker.

Choosing a mortgage broker is primarily a question of trust. There are 2 things that normally help us trust a professional:

  • Integrity Will the mortgage broker put my interests before his own and that of the lender? “The negotiation of a mortgage involves two parties who are opposed and whose interests diverge: the lender and the borrower. It is important that you are confident that the recommendations of your advisor reflect the best strategies and solutions for you.
  • Expertise: Does your mortgage broker have the ability to offer the best solutions? Your mortgage broker should be able to compare for you the various mortgage products and determine which is best for you.

The two components, integrity and expertise are necessary for trust. Here are two examples to explain this point:

A good used car salesman probably had the expertise to sell you a car, but will you trust him? It depends!

Even if your car salesman is the most honest man you know and works hard, does he the right knowledge and expertise to be able to select the best car deal for you?

Choosing

Trust is often a feeling that one has with a person. It is based on the fact that we think that this person demonstrates integrity and has some expertise. If you find the right person to be your mortgage broker, you will probably end up with a professional who will be able to advise you for many years.

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Mortgage Strategy

December 26, 2009

A good mortgage strategy is the basis for significant savings: thousands and even tens of thousands of pounds in savings on a mortgage of £100,000.

Choosing the right mortgage strategy

The easy answer for choosing a good strategy is to contact a mortgage broker who specializes in creating customized mortgage strategies for the clients.

Why?

There are three good reasons:

1. Nobody knows the future of interest rates in the UK.
2. Good strategy must take into account the current economic climate and changing situation.
3. It must be customized with your goals and your personal situation.

Working with all this is not an easy job and it is better to check a mortgage professional who does this day after day.

But do not stop there.

You need to take on the more difficult task of analyzing several factors to create a mortgage plan.

In order to choose the right mortgage strategy, you need to:

know the strengths and weaknesses of the mortgage products available;
identify your current position in the cycle of interest rates, and
assess the probability of higher or lower rate for the next 10-15 years.

Cycles of interest rates.

There are basically 3 types of scenarios and 2 basic rules to understanding interest rates (all this could take several books but we’ll keep our issue at the way).

Scenario:
1. Rates are generally higher
2. The rates are generally falling
3. The rates are generally stable.

Two Rules of Interest Rates:

• Interest rates below inflation. When the index of consumer prices rising rates are increasing.
• Interest rates are linked to the economic health of UK. When the economic situation is healthy, the interest rates rise and when things go wrong rates go rates down.

Nobody knows the future of interest rates. We just need to remember that each scenario requires a particular strategy and getting it wrong can prove very costly. For example, it could be disastrous for a strategy to be linked to lower interest rates and they start rising.

A borrower may want to “stay on the safe side” and opt for a pre-determined risk strategy with a mortgage that is fixed at the same rate for say 5 years. Alternatively, someone may want to opt for fixed rate for much longer, but at times this strategy has proved costly. Choosing the right product, therefore, is crucial to saving thousands of pounds on the long run.

What are the different strategies?

There are several basic strategies, each may have several options and it is often advantageous to combine two strategies together to take advantage of the market. The most important thing is to consult a certified professional in the mortgage market.

Properly evaluating the different the strategies means a borrower can enjoy a proper mortgage planning and savings throughout the duration of a mortgage. Remember that a good mortgage strategy is significantly more important than simply negotiating the best interest rates. Each strategy deserves an explanation must and be customized and combined with your long term goals and the state of the economy today.

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