If you are in the market for a mortgage to buy a house you've no doubt heard the term "points" being thrown about. No, they aren't talking about the score from last night's NFL game; they are actually talking about a fee that is paid to the lender of the mortgage you are taking out to buy your home. Points can have impact on your mortgage,... Read more
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On a global level, things are unlikely to be quite this bad, but there's no doubt that there are storm clouds on the horizon. There's also no doubt that one of the areas to see the greatest impacts could be that of personal mortgages and remortgages. Mortgage lenders have found that years of lax lending criteria are starting to come home to roost, with millions of sub-prime borrowers getting into some level of difficulty making their repayments. This is coupled with a crisis in the inter-bank lending market, which basically means that banks are unwilling to extend finance to each other until the full effects of the sub prime crisis can be evaluated and analyzed. What this ultimately means is that mortgage rates are probably going to go up, despite central banks across the globe cutting their base interest rates and flooding the markets with cheap cash. But what does this mean for ordinary mortgage payers? Firstly, millions of people are now coming to the end of fixed rate mortgage deals which saw their payments protected against the fairly substantial hikes in interest rates over the last few years. These people are going to be in some pain when their mortgage levels suddenly jump up from their fixed discounted rate to the new, higher, variable rates. When you consider that it's going to be harder to arrange a new deal, and that property prices are likely to at best remain flat for a few years, then for many homeowners the prospects look a little bleak. Many will probably get by hoping that there are more interest rate cuts in the pipeline, and that these cuts will filter down into lower mortgage payments across the board. This may in fact happen, but an equally likely scenario is that mortgages will become ever more expensive in response to rising bad debts, and that repayments will rise inexorably. One possible solution to this is to arrange a new fixed rate remortgage as a matter of urgency, even if the rate you can achieve is higher than you might hope for. At least having your repayments fixed for a couple of years will be some protection against the impending turmoil which many doomsayers are predicting, but this needs to be offset by the possibility, however unlikely, that rates will fall dramatically and you could be left high and dry on an uncompetitive deal. As with all things financial, there is more to consider for each individual circumstance than can be covered in a single informational article, so you should always speak to a qualified and licensed adviser before taking such an important decision. It is however certain that one of the biggest decisions facing mortgage payers today is whether to trade off the security of fixed rate payments against the gamble of possible future lower rates.
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