Mortgages – Beware the Headline Interest Rate

Interest Rates … Interest Rates … Interest Rates.

Apart from the so-called “credit crunch”, mortgage interest rates have dominated all aspects of our lives over the last year to 18 months; so much so that we automatically assume a lower interest rate on a mortgage to be better for our circumstances than a higher interest rate. But that’s not necessarily the case.

Recently, newspaper advertisements and online advertisements in particular were grabbing the headlines with statements similar to the following:

“2% above base – nothing lower around”

“Fantastic Fixed Rate of 3.93%”

“Get this 4.09% fixed rate now before it disappears”

Although the mortgage rates shown above are just examples that have been adapted from real world advertisements, they are most definitely buy penicillin headline grabbers. Whether they be shown online or offline, at least one of these mortgage interest rates is likely to catch our attention.

The above advertisements go some way to helping us remember that mortgages are sold like most other products. The interest rate is used to grab the headlines and get our attention. The interest rate HAS to be real of course (otherwise big trouble for the advertiser) but there are a number of criteria from the lender that so easily prevents us from getting such a low rate of interest.

Consider the recent headline-grabber rate of 2.29% that was withdrawn from the market late March (09). Everybody wanted it – from mainstream residential borrowers to buy-to-let investors with an adverse credit history. Bizarrely, they all thought they could get it judging by the increased enquiries mortgage advisers received for the product.

What very few realised though was this product was a tough one for most people to take advantage of. According to the Council of Mortgage Lenders the average Loan-to-Value in January 2009 was 76%. Put another way, the average deposit or equity in a UK home was 24%. Yet this fabulous, headline-grabbing product required a 40% deposit – almost twice the average available. Furthermore, this mortgage product also required borrowers to have a “squeaky clean” credit profile.

That’s why the interest rate being charged on the mortgage could afford to be set that low, which is fine if you urgently need to maximise your monthly income or minimise your monthly expenditure over the very short term. For example, you may want to kick-start some savings or quickly pay off some other debt hanging over your head that is being charged at a higher rate of interest than your mortgage.

Nevertheless, if someone is able to look slightly ahead i.e. just 13 months – which comes soon enough – they will see for themselves a good deal of interest rate risk. After all, where do you believe rates can go now given the Bank of England base rate is almost at zero? Hence, the attractiveness of fixed rates in the current climate.

Yet the mortgages attracting the lowest fixed rates right now also have the shortest timeframes too, such as 2 years or less (similar to the one mentioned above). This gives us some insight into how lenders currently view the short to medium term – they too see interest rate risks for the next 2 – 3 years as the mortgages with the lowest rates AND the lowest fees are based on a variable rate (e.g. Variable Capped, Variable Tracker and Standard Variable Rate itself).

We all want the lowest monthly payment on our mortgage and lenders amoxil cheap know this. One of their strongest marketing tools is an interest rate that just looks cheaper than everybody else. It may well be the cheapest rate around. Just do your due diligence first or speak to a Mortgage Adviser and have them do it with you. Whatever buy amoxil you do, choose a mortgage product that suits your circumstances and saves you money, not one that just grabs your attention with a low interest rate.

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