Are new stepped rate mortgages just delaying the inevitable

In the UK there has recently been an increase in the number of new stepped rate mortgage products on offer. These products are where the lender offers a stepped phase of interest rates, usually each rate lasts up to a year before you must move up to the next, higher interest rate for the next year. For example, a first year interest rate of 5.99 per cent may be available with a second year interest rate of 6.79 per cent. Usually these type of mortgage products do not charge a fee, making them a very good offer for people coming to the end of a low rate fixed rate deal. 3 or 4 years ago, when interest rates were at an all time low, you could have picked up a fixed mortgage rate in the region of 3.50 per cent!

Imagine the panic setting in for people who initially fixed they’re mortgage rate back in 2003 or 2004. Over the years since then interest rates have continued increasing month after month.

As lenders are now withdrawing their more competitive mortgage products, these new stepped rate offers seem to be the best way forward for customers who may be living in fear of paying a higher mortgage rate.

As you can clearly see the only problem is still the initial first year stepped rate increase to 5.99 per cent in the example. This is an increase of nearly 2.5 per cent; something to bear in mind if you’re still lucky enough to be on a fixed rate under 4 per cent.

Are new stepped rate mortgages just delaying the inevitable

In the UK there has recently been an increase in the number of new stepped rate mortgage products on offer. These products are where the lender offers a stepped phase of interest rates, usually each rate lasts up to a year before you must move up to the next, higher interest rate for the next year. For example, a first year interest rate of 5.99 per cent may be available with a second year interest rate of 6.79 per cent. Usually these type of mortgage products do not charge a fee, making them a very good offer for people coming to the end of a low rate fixed rate deal. 3 or 4 years ago, when interest rates were at an all time low, you could have picked up a fixed mortgage rate in the region of 3.50 per cent!

Imagine the panic setting in for people who initially fixed they’re mortgage rate back in 2003 or 2004. Over the years since then interest rates have continued increasing month after month.

As lenders are now withdrawing their more competitive mortgage products, these new stepped rate offers seem to be the best way forward for customers who may be living in fear of paying a higher mortgage rate.

As you can clearly see the only problem is still the initial first year stepped rate increase to 5.99 per cent in the example. This is an increase of nearly 2.5 per cent; something to bear in mind if you’re still lucky enough to be on a fixed rate under 4 per cent.

Zero Down Mortgage Loans for First Time Home Buyers

The Down Payment Issue

A Down payment in the range of 10% to 20% is usually required for obtaining a home loan to buy a house. There are also closing costs that you will need to pay in order to secure the loan. If you add up these two factors, very few can afford putting down so much money.

The financial industry, however, has found a solution to this problem and offers a new financial option. Zero down mortgage loans are meant for those who cannot put away enough money for a down payment. With these loans you can finance 100% of the property value. Moreover, for those who cannot even raise the money for closing costs, there are lenders offering 103% or 105% finance home loans. The extra percentage is used for covering the closing costs which will then be included in the overall debt that you will have to repay in monthly installments.


Drawbacks of Lack of Down Payment

Zero down mortgage loans sound tempting but though not having to put money down in order to purchase a house can seem to be a fabulous waiver, it has many drawbacks and unless strictly necessary, it should be avoided by all means possible.

A down payment has not only direct positive financial consequences but it also can be a positive factor when the lender has to decide whether to approve your loan or not and on what terms. When the lender has to consider your application, a down payment tells him that if you were able to save enough money to make a considerable down payment, you will probably be able to meet your monthly payments without any difficulty.

A down payment will also imply that you have the ability to obtain finance elsewhere and so, the lender will try to offer you a more tempting loan proposal in order to keep you as a client. Those who can offer a down payment always get a considerably lower interest rate than those who cannot.

As you can see, a down payment reduces dramatically the risk implied for the lender in the financial transaction, and thus, you will be able to get a better deal on your loan. A down payment will not only reduce the interest rate you pay; it will also lessen all the other loan requirements and will turn the loan terms more flexible. You will be able to get stretchy monthly payments and larger loan lengths too.


Home Equity Loans

If you wanted to use that money for making home improvements or for other expenses, you do not need to worry. Once the deal is closed, the amount you had to put down will become home equity and you will be able to request a home equity loan for the difference between your home value and the amount owed on the mortgage. These loans are secured and carry low interests; they are the perfect solution if you ever need the money you used for the down payment.

Paying the Penalty

The interest rate has just dropped and you wonder if you should try and get a lower rate on your mortgage, but there are penalties involved in breaking your mortgage agreement. Hammy...what to do?

Once we are indebted to a mortgage broker or a bank, that financial institution prefers us to stay the course. They have already calculated that they will be receiving X amount of dollars from you for the next five years (or three years etc) and these figures are in their investment portfolio. Your money has been ear-marked by them as their known quantity of 'spending money', usually to be invested in the stock market.

The finance companies like things neat and tidy. They discourage you to mess about with their plans. And they certainly do not like to lose money, hence the penalty for changing your mortgage (you will only change it if the rate goes down).

However, they are willing to talk to you about a change in your mortgage, so it is worth making an appointment to see what their calculations and advice amount to.

The two main factors to take into account are: how much the drop in interest rates amounts to and how much is the penalty. Each contract may have a different penalty. Some companies use a set amount, say $3,000 and some companies charge you three months extra payments, and there are many variations in between.

The Internet has many mortgage tables to help you to calculate your exact repayment differences. Just one quarter per cent is a minimal difference, but one per cent is a big difference, as this example shows:

In this example the amortization is 240 months (this is 20 years, the complete length of time of the loan - regardless of the smaller mortgage periods) and the interest rate is 7.5%. Let us imagine that hypothetically, the interest rate has been gradually dropping and it is now at 6%.

Your monthly repayment is $1,550 and you have two more years ( 24 months) left to pay at this rate.Even if you have the three month penalty clause to pay and you add it onto your total mortgage, your monthly payments, albeit with this slightly larger mortgage amount (the penalty of $3,000) will be lower. They will be $1291 and your savings over the last two years of your repayment period will be $5,016.

Many times the interest rate is not so marked as the example, but contra to what most people think, it is worth looking your figures up on a mortgage table, or phoning your bank to check.

The Federal Reserve Interest Rate Cut Too Little !Too Late

The Federal Reserve cut interest rates on Dec. 11th on hopes that the credit crisis would be tempered from 4.5. Markets were on the upswing up until the cut was announced because many investors were under the impression that the central bank, under pressure from all sectors of the economy especially real estate, would deliver a heftier half-point cut, which would have made it significantly less difficult for banks to borrow money from the Fed for their day-to-day transactions.


While the rate cut was still welcome from all fronts, the quarter-point cut disappointed many investors, resulting in a 200 point drop in the New York Stock Exchange within a matter of minutes. Consumer confidence is at a five-year low, reflected in markets around the world. However, the extreme volatility of recent months has been as much a function of investor skittishness as of the credit crunch itself. While most of the sub-prime mortgage fallout has been focused within the real estate market, investors who are uncertain of market conditions will be less likely to invest more, thereby limiting growth.


If the Fed had taken a different approach to their sole mechanism for assisting economic growth, investors would, in all likelihood, have a much better disposition. Over three months they have cut the rate a total of one percentage point, each cut instigated by liquidity difficulties and the sub-prime woes. Now credit is barely more available, and the only plan offered to circumvent the housing slump is laughably inadequate and initiated by lenders. Nothing significant has changed, except that oil prices have fallen from their incredible highs to a slightly less incredible high, and that most Americans are worried even more about their homes.


A concentrated drop of one percentage point in one month could have signaled a much more decisive Fed, restoring faltering consumer confidence through a message saying that effective measures exist and will be taken. By diluting the interest rate cuts over a fiscal quarter, the potential gains to be made by the resulting rate are less impressive, especially on a spooked market.


Fortunately, another rate cut is on the horizon, probably in January. Thus they are able to reduce rates without making a serious statement in regards to the uncertainty investors feel, and in fact exacerbate its results on the market, as shown in the recent cut. Yet their course does ensure that change will occur, even if not in the form and timeliness one might expect.


Another concession to recent events comes in the primary discount rate cut, which helps boost the amount of currency available for banks to lend to each other, from 5. With projected growth estimates all

The Interest in Interest Rates

Lately we have all become more curious about interest rates and the effect they have on our lives. Our main interest, of course, is to get the most for our money, and as most of us borrow money for a house purchase, part of this involves finding a good interest rate for our mortgage loan.

Many of us who are shopping around for financing are not strong enough about negotiating a lower interest rate. Perhaps we feel that we are not in a position of strength, but in fact, we often represent hard cash to the person negotiating the deal for us.

In many cases, this person will be a mortgage broker. The different types of mortgages vary so much that one short article cannot explain them all. However, once the mortgage broker knows all the facts about your finances. then he/she will know the best type of company to place you with.

If you are unable to get financing from your bank, there are still options out there. Folks who have a less than perfect credit rating can often still find mortgages through a broker. There are also such things as an equity mortgage, this is where you can use an existing property to raise money for a second property. Your broker can help you with many different scenarios.

In the case of house buying, your relator will often be able to recommend a broker. Sometimes the recommended broker will go the extra mile to try and get you the financing, because he has a deal with the relator to get a small percentage of the commission on the sale. This is a logical step for the relator , as a house sale will often fall through because of the financing and then the realtor loses the deal.

It is in your favor to have a broker who is pulling out all the stops, so it is worth trying a broker recommended by the relator , as well as one you may have in mind. The broker's fee is paid by the finance company who eventually finance you, so having more than one working for you is not uncommon.

The interest rate is negotiable right up to the moment of preparing the document for signing. Your mortgage broker can go back to the financier at any time. Even one quarter of a percent will save you hundreds of dollars.

Some advice from a group of independent mortgage experts reads as follows: When dealing with your lender, it is advisable to have the same steely determination as you would when dealing with a used car salesman!

Mortgage Refinance The Smart Choice

As the market shows lower rates many are thinking of refinancing their home loans thus saving thousands of dollars in interests. However in order to decide whether a refinance is the right option for you, you need to know the process of mortgage refinance and which lenders and which loans are right for you.

Mortgage Refinance Definition

Mortgage refinance implies getting a loan in order to pay off an outstanding loan. Both loans will be secured with the same asset thus the repayment is done immediately and the loan amount can not be used for other purposes, unless of course there is cash remaining after the previous loan is canceled. The new loan can be obtained from the same institution or from another.

Uses Of Refinance

There may be other reasons why you would like to refinance; you may want to make home improvements, reduce the monthly payments, convert an adjustable rate into a fixed rate, etc. If you want to make home improvements you can apply for a refinance with a higher amount than the remaining of the outstanding loan, this way you will have extra cash to undertake any improvements you where longing to carry out.

Reducing Monthly Payments

In order to reduce the monthly payments you can extend the loan repayment period. You will apply for a loan with similar rates but longer repayment periods; consequently the monthly installments will be substantially reduced. Even if the interest rate is a bit higher, you can still reduce your monthly payments by extending the loan length. However, make sure to balance these two variables (length and interest rate) so you do not end up overpaying just because you want to use your income for other non essential purposes.

Opting For Fixed Or Variable Rates

If you fear that interest rates may raise in the future you can refinance your home loan and opt for a fixed rate in exchange for the variable rate of the outstanding loan. This way you will be safe from future rates variations as the amount of your monthly payments will remain as settled in the contract. You can also opt for a variable rate if you feel that you can take advantage of lower interest rates that are usually implied by variable rate loans.

Finding The Right Lender

As you can see, refinancing your home loan is an excellent option when done taking into account all of the above. You can take advantage of better market conditions and end up in a better financial position with a very simple financial transaction. The key to be successful is to find the right lender, you can find the best options by applying online, and you will be able to compare rates, periods and other conditions.

Nevertheless, refinancing ought to be taken seriously; the new loan will be a burden you will have to carry for many years, so make sure to get it as weightless as possible so you do not have to make sacrifices in order to meet the monthly payments. This kind of financial transactions, due to the length an amount, will determine your future financial situation for many years.