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How to Compare Mortgage Rates
There are many different types of mortgage products available on the US market, but when looking for the best mortgage rates, there are only a few main types to look at when you compare mortgage rates on offer. They are:
- Fixed rate
- Variable rate
- Discount rate
The majority of home loan borrowers prefer stability and choose fixed rate mortgages over variable rate home loans. The most popular mortgage deals which tend to offer the best value-for-money are those that offer an initial special rate - either fixed or variable - for a set period of time, normally between two and five years. After this initial deal period has expired, borrowers will generally pay back their mortgage at the lender's standard variable rate.
Reputable lenders will allow borrowers to leave at a minimal cost once the initial deal period has ended. They can take up a new deal after comparing other available mortgage rates and securing one which suits their budget and lifestyle. It is wise to shop around and check and compare mortgage rates regularly to guarantee you get the best mortgage rates on offer.
Compare Mortgage Rates
Fixed rate mortgages
Fixed rate mortgages suit those who:
- enjoy the security of having fixed regular repayments
- may have over-stretched themselves to purchase a property
However, when you compare mortgage rates, you'll see that fixed rate deals may not be the best mortgage rates as they are generally higher than variable special offers and many lenders have high fees for their best deals. If you choose this type of mortgage rate, make sure that your loan is portable and can be carried with you if you decide to move house with the same lender.
Standard variable rate mortgages
If you are a borrower who does not bother to regularly check and re-assess your mortgage deal, you may end up paying a standard variable rate.
When you compare mortgage rates, the repayments on this type of mortgage rate tend to be unfavorable when compared to special offers available on the market. The standard variable rate moves broadly in line with the rate established by the Federal Reserve, although it is not compulsory for your lender to pass on any savings to you.
Discounted rate mortgages
If you compare mortage rates, you'll find out that this type of mortgage rate is linked to a lender's standard variable rate. However, it tends to track or follow the variable rate at a discount of between 1% and 2%. Even though these might seem like the best mortgage rates upfront, these deals can leave you exposed to the danger of fluctuating interest rates, as the rate will rise when the bank rate does. The advantage, however, is that these rates tend to be more competitive than fixed-rate deals.
Some to consider when you compare mortgage rates
- When seeking the best mortgage rates, be aware of the many lenders who only offer special initial rates in the hope that after they expire, you will forget or be too lazy to switch your existing mortgage to one with a more favorable rate. They hope that, out of sheer convenience, you will automatically end up paying the exorbitant rates on their standard variable rate mortgages.
- Additionally be wary of lenders who lock you into a deal which imposes a penalty fee if you want to move the deal within a certain time-frame. For example, a 3-year fixed rate deal might have a 'collar' that stops you switching deals for a further 2 years. If you compare mortgage rates, try to avoid these type of deals, and insist on deals with no extended redemption penalties.
- Before you take up any mortgage (when you think you've found the best mortgage rates), check if it carries any early repayment charges. If it does, it could make it financially difficult for you to leave a mortgage during a deal period.
- Although moving your home loan to one with a better mortgage rate can save you money, be aware that frequently switching deals can prove an expensive business. Every time you switch to get the best mortgage rates, you will face a charge that could be as much as a few months’ of interest charges. You need to factor these costs into the equation when deciding whether to move your mortgage when you compare mortgage rates. The savings you hope to make by securing a better mortgage rate could be cancelled out if you have to pay out heavy administration costs.
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