The Interest Rate
The Interest Rate
The interest rate element of the mortgage is the most important. This is for one very simple reason.
IT CAN CHANGE, and in doing so it may upset your household budget.
It is vital to understand that while you may buy a house today with a mortgage costing £400pm for example, interest rate changes could reduce that, or increase it.
In the past these changes have taken place very quickly. Just a few years ago the property market was very strong, and people were really pushing to get onto it. Some of them are now in negative equity, (their mortgage is more than their house is worth).
For buyers this means that it is important to buy on the basis that it will be a home for a reasonable period of time, at least 2-3 years. (In a flat market the transaction costs on buying/selling could eat into any profit you might hope to make, and since they would not be offset by gains made on the property, it might be better to rent. Talk to your Mortgage Adviser.)
Also, if maxing out your budget on a mortgage, give serious consideration to a fixed rate mortgage for the first few years to protect you in the event of interest rate rises.
To see how rate changes could affect you use the Interest rate calculator. You should note that rates are currently low (when compared to most of the past 25 years ). If rates of 10-12% within the next few years would be unaffordable then be careful. Also experiment with rates of 8 - 9% - if they would be unaffordable within the next 3-4 years be very careful.
Last updated on May 21, 2009