Getting a cheap mortgage is perhaps one of the main concerns people have, price seems to be the primary focus for the majority of clients in making a decision about which mortgage to go for. Mortgages do have certain things that can be included as ‘added extras’ but unlike cars or houses these add-on options are not always the thing that attract a person to a loan type, certainly in our experience it is price oriented considerations.
The things that might be possible to include as ‘extras’ would typically be things like being able to take a mortgage break, this is where you make no payment for (generally) up to three months. Off-setting savings against the mortgage is another one that is becoming more popular, this is where you can use any money on deposit as an ‘offset’ against the principle. In basic terms imagine the following: you have savings of three thousand and a mortgage of two hundred thousand, you pay the same monthly amount but the interest is calculated on one hundred and ninety-seven thousand (200k – 3k savings) so there is a slightly higher capital repayment because the interest on 3k is now instead going towards repaying the loan. The end result is that your mortgage is repaid quicker, you pay less interest as well.
Other options include the ability to have your loan split, a portion on interest only and a portion on a repayment basis, fixing one part of the loan and keeping the other part on a variable. All of these options have positives and negatives however if you want to get a cheap mortgage you have to decide what matters more to you, flexibility or price only, sometimes you can get both which is always nice!
Mortgage interest rates have had an interesting ride over the last four months, that’s because the EURIBOR has been at historic highs, banks generally do their lending on the ECB (for ease of understanding for the client) but they buy their money on the EURIBOR (European Inter Bank Ordinary Rate) which is normally slightly higher than the base rate.
For the most part, and in the days before ‘credit crunch’ became an industry by-word, the EURIBOR was not much more than the ECB base rate, however with the worldwide credit issues coming to the fore the inter bank rate shot up to nearly one percent above the ECB so this was like a rate hike but the ECB hadn’t actually raised rates, people on tracker mortgages were protected because the regular trackers are linked to the ECB not the Euribor, people with commercial mortgages definitely felt it though because they pay based on the EURIBOR.
This meant that banks were in many cases paying more for the loan than they were getting in, not a good position to be in by any means and one that has meant that the race towards the bottom in terms of rates is probably over. It is safe to say that ECB+ 0.55 is now going to be a thing of the past.
Don’t let that put you off though, looking around for the best mortgage deal is still often in your favour and you can save literally tens of thousands over the life of a loan depending on your situation, you don’t have to move your mortgage but its a good idea to consider the options available every few years.