Costs of Low Interest Mortgage Loan |
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When it comes to mortgage loans, low rate deals can be very misleading, according to Moneyfacts, an independent site providing personal financial information. Lenders trying to attract new customers to mortgage loans may offer lower interest rates but try to recover their costs by raising their fees and charges. In the last six months the average arrangement fee has gone up from $339 to $480, an increase of 42%, says the site. Some mortgage lenders have also introduced or increased exit fees, which kick in if a customer repays their loan early. There can also be application fees, typically around $250, which are paid up-front and are non-refundable, even if the house purchase falls through. The various charges can make it difficult to know which the best deal is. As a general rule of thumb, says Moneyfacts, the larger the loan, the more important the interest rate; for smaller loans, attention should be paid to the total fees. The best strategy when comparing different mortgage loan deals is to calculate the monthly costs, add on the fees and charges of each deal being considered, and then see if there is a significant difference. Despite enticing deals with low interest rates, if a borrower is short of cash, a higher interest rate may actually be the best option, says Moneyfacts. What's your interest rate? Decide, before you proceed! Lenders, however, seem to be able to rely on an easy ride from consumers: a recent poll by Moneyfacts suggests that three out of 10 consumers do not know what interest rate they are paying on their mortgage loan. Moneyfacts' web editor, Emma Butler, says: "With mortgage loan balances being so high the potential savings of changing to a better deal can be thousands of pounds. The other concerning fact is that so many people—50%, according to the poll--did not or would not seek independent advice before taking out a mortgage loan. Some of these people may be financially aware but others will have uncompetitive products." Information collated from a poll of Moneyfacts' 90,000 monthly users also showed that four out of 10 consumers plan to move house this year, and thoughts on house price movements were evenly split, with half the consumers predicting that they will rise. The weekly survey by Freddie Mac, the mortgage loan company, that was released Thursday showed that rates on 30-year, fixed-rate mortgage loans averaged 5.69% for the week ending Feb. 24, compared with 5.62% the previous week. It was the second consecutive weekly increase. Before that, rates on 30-year mortgage loans had fallen for six straight weeks, hitting a low for this year of 5.57% the week of Feb. 10. "Mortgage loan rates moved up for a second week in a row on concerns about a pickup in inflation showing up in raw materials," said Freddie Mac's chief economist, Frank Nothaft. Sales of new and existing homes set records in 2004 as mortgage loan rates remained at their lowest levels in more than four decades. Analysts said even with expected increases in mortgage loan rates this year, housing sales will dip only slightly from their record levels. Rates on 15-year, fixed-rate mortgage loans, a popular option for refinancing, rose to 5.22%, compared with 5.14% the previous week. Rates on one-year, adjustable-rate mortgage loans rose to 4.16%, compared with 4.15% the previous week. Five-year, hybrid adjustable-rate mortgage loans averaged 5.05% last week, the same as the previous week. These hybrid mortgage loans have a fixed rate for five years and then adjust each year after that. The nationwide averages for mortgage loan rates do not include add-on fees known as points. The 30-year and 15-year each carried a 0.7-point financing fee, while the one-year ARM and the five-year mortgage loans each carried a 0.7-point fee. A year ago, a 30-year mortgage loan averaged 5.58%, the 15-year was at 4.89%, and the one-year ARM was at 3.5%. Are you serious? The main things that would encourage landlords to buy were low interest rates, rising house prices and very good rental yields. The main things that would make them sell were rising interest rates and rental income that did not cover the mortgage loan - these were more likely than stagnant house prices to prompt landlords to sell. So think before you head-on! |
