The Mortgage interest rate looks to have bottomed out

interest rate look to have bottomed out

Money saving Expert says, surely the Bank of England base rate cannot drop any further? They could drop another half a percentage point to zero but there seems little point in reducing interest rates further. The government and the Bank of England have now introduced and started the process of Quantative Easing. They will spend some £75 billion over the forth coming six months and they have a further £75 billion earmarked in total to spend. This  money will  start to filter back into the economy. The days of a quick mortgage or quick remortgage has long since past and the most we can hope for is a loosening of the money supply and for the mortgage lender to start lending money again.

Quantative Easing is the creation of new money ‘out of thin air’ by the central bank or printing money to you and me. This new money is then injected into the banking system for the purchase of securities and government bonds. This increases the amount of money in circulation and stimulates the flow of money around the economy. This is a solution of last resort as it is seen as a risky strategy that has the potential to trigger higher inflation if not monitored properly. Last time it was used was 2001 in Japan and they still cannot say for certain that it worked or it did not work.

The interest rates at which banks and lending institutes can acquire fixed price funding (money) from each other over a specific period of time to create fixed rate mortgage products for homeowners and business mortgages is referred to as the swap rate. These swap rate looks to have settled down in recent weeks and we are now seeing a number of mortgage lenders offering attractive fixed rate mortgages.  Like the recently released Nationwide two-year fixed rate mortgage at 3.79% for remortgage customers looking to borrow up to 75% loan-to-value.

These new swap rates are a good omen for homeowners who have a standard variable rate mortgage or a mortgage scheme that is coming to the end of a tie in period. Interest rates have never in the history of the Bank of England been this low. You should seriously consider looking for the lowest interest rate mortgage over the long term that you feel comfortable being tied to. You should make sure that any new scheme is fully portable should you wish to move home in the future. You should also feel comfortable with any penalties that you would have to pay if you had to change lenders during the term of any new scheme.

What money saving benefits is there for you the mortgage borrower being tied into a long term mortgage scheme?

Below is a list of savings you would benefit from:-

1. No more hassle of remortgaging every two or three years.
2. Save paying lenders arrangement fees everytime you remortgaged. These fees have steadily become more and more expensive over the last few years and you can expect to pay between £495 and £3,500 depending on the size of the mortgage.
3. Save paying Solicitors fees for the legal work everytime.
4. Save paying valuation fees everytime you remortgaged.
5. Save paying Mortgage Brokers fees everytime time you change your mortgage provider.

Consider the costs of remortgaging every two or three years can increase your costs and the term of your mortgage.  It can leave you wondering when you will pay off the money you have borrowed. Let me explain, if the cost to remortgage totals £1,800 (hypothetically) which is added to  your current amount borrowed and then over the next two or three years of paying your mortgage you pay £3,000 off . The amount you owed would have decreased by £1,200 during those two to three years.

So the question you should now be asking your bank, lender or your mortgage broker is, ” When will my mortgage actually finish and how much extra will I have paid for the privilege of remortgaging every couple of years?”  It is important that you understand that it is in your bank, mortgage lender or your brokers’ interest to let you remortgage regularly as they earn money everytime they arrange a new deal. Often they will scoot around the question by saying,  “what if interest rates drop?” and your next question should be “what impact will that have if I could not change?”

You should ask about the advice you are receiving. You need to know that the advice being given is in your best interest and nobody else’s. In other words any money saving advice given by an expert should be explained properly and the information provided should be totally unbiased and easy to understand.

Your thoughts, experiences and comments are welcome. You can join the discussion below and leave your thoughts and experiences.