1stchoicemortgageservices

Nothing is ever certain in the world of finances, and theres no way of predicting how the market will change in the future. However, if you want to be able to plan your budget precisely, then a fixed rate mortgage might be the right option. The repayments will be fixed for a set period of time usually between the first one and five years of your mortgage, so you can be sure that any rises in the interest rate will not affect you. The term the rate remains fixed can be as long as ten years.

Fixed rate the pros

For those on a tight budget, it can be useful to know exactly what will need to be set aside each month for mortgage repayments. Also, it can be a good move to fix your rate when the economy looks like its about to change and interest rates rise. If, from studying the market, you anticipate that rates are set to rise in the near future, then taking a fixed rate now could mean you will save money over the next few years. Even if the Base Rate set by the Bank of England rises, you will be protected, at least for the term that your payments are fixed.

Fixed rate the cons

If the market changes and interest rates fall, you could lose out on a reduction in rates. Fixed rate mortgages are often set at slightly higher rates than the cheapest deals. Be aware of redemption penalties and clauses that tie you to your mortgage these can last much longer than the fixed rate period and you may find it prohibitively expensive if you want to change lenders or pay off your mortgage.

Thousands of people spend a lot of time studying the economy, and even the financial experts who predict market conditions often get it wrong. Its impossible to foresee how interest rates will change although you may be able to apply common sense to a certain degree, there is no guarantee that a fixed rate mortgage will beat the SVR five years down the line. Ultimately, you have to make the best decision you can based on the situation as it stands.

You should also check to see if the fixed rate mortgage is portable this means that if you want to sell up and move house during the tie-in period, you can transfer the mortgage to your new property without incurring any penalties.

Too good to be true? It probably is. The Adjustable Rate Mortgages (or ARM in industry lingo). These guys can be a wolf dressed in sheep’s clothing and if you aren’t careful they are going to take your home away from you!

An Adjustable Rate Mortgage works this way. Initially, you are probably going to be paying anywhere from 2 – 3 % below the current market interest rates on your mortage. For most people, this allows them to purchase a bigger house, one that would normally be outside their price range. The normal reasoning is that by the time the loan adjusts they will be earning more, the economy will be better, etc.- which could be a year from now, or as much as 7 – 10 years from now –

Sometimes it just isn’t that way. In no time, we went from two incomes to one or we just aren’t making as much as we were. Worse still, interest rates rise and when it comes time for our ARM to adjust it goes up.

Some Adjustable Rate Mortgages changes every year based off current interest rates set by the Federal Reserve. Sometimes, this can be a good as interest rates may have fallen and you could end up paying in interest than you were at the start of your loan.

There are other ARM’s that adjust after a number of years – say 7 to 10. When they finally commit themselves, it can be a real sticker shock for the homeowner. If they haven’t planned for this financially it could mean the difference between them keeping or losing their home because monthly mortgage payments could double in size depending on how low your interest rate was before the adjustment and what current interest rates are.

So what’s the best decision that most smart home owners make? Go with conventional mortgages that have a predefined interest rate that is locked in over the life of the loan. If market conditions allow, you can always look into refinancing your mortgage and getting a lower interest rate.
Adjustable rate mortgages are good for those who like to take risks – and some argue they are good for families just starting out who know they will need a bigger house in the future and will have larger incomes in the future as well. However, as we all know, nothing is as certain in life as change and sometimes the smart homeowner knows when to play it safe and keep a roof over his or her head!