Comparing mortgage interest rates
Even in periods when interest rates are low, a fixed-rate mortgage comparison will still reveal substantial differences. Providers constantly adjust their interest rates, so their comparative interest-rate ranking may change, even over the course of just a few weeks. Furthermore, the interest rate charged will vary in accordance with the duration of the mortgage. In principle, shorter mortgage loan terms attract lower interest rates, irrespective of your choice of lender. So while bank A’s interest rate for a 5-year fixed-rate mortgage is lower than bank B's, it doesn't necessarily mean that bank B can't offer you a better interest rate for a 10-year fixed-rate mortgage.
Before making a comparison, you should first decide your financing strategy and thus what mortgage product and mortgage loan term you will require. You should also bear in mind that bank lenders will assess the borrower’s financial situation, and each will factor this into the interest rate calculation in their own way. In particular, they will note the amount of personal funds a borrower plans to contribute to the property purchase, and what proportion of the total purchase price will be covered by the mortgage loan. This relationship between the amount of the mortgage loan and the value of the property is usually referred to as the ‘loan-to-value’ ratio.
Fixed-rate mortgage comparisons – other important considerations F
When taking out a long-term fixed-rate mortgage, it is natural to assume that no major changes in income or personal circumstances will occur. However, it’s just not possible to plan everything, and matters such as divorce, change of employment, or the death of a (marriage) partner may have serious financial consequences and can rarely be foreseen. In such situations lenders will generally allow the borrower to exit from the mortgage contract.
However, this will be subject to conditions, and the termination of a mortgage will often necessitate the sale of the property. Sometimes termination can be avoided if the borrower is able to find a buyer willing to take over the property along with the mortgage – though such transfer still requires the lender’s approval. Mortgage termination may trigger an indemnity payment, and if so, the cost will depend on three factors:
- The loan interest rate
- The remaining mortgage loan term
- The interest rate at which the lender can invest the money repaid
If the borrower repays a loan before expiry of the agreed term, the lender will then have to reinvest the money repaid in order to mitigate the loss of income from the loan interest. And if the interest rate available on the capital market is below that of the mortgage loan agreement, the borrower will be obliged to pay the difference. Conversely, if the lender secures a higher interest rate, and thus earns additional income, this will not necessarily passed on to the former borrower – all will depend on the structure of the loan agreement.
The personalised advice we offer clients though our MoneyPark branch offices will provide a thorough and comprehensive overview of what is available on the mortgage market. When comparing fixed-rate mortgages, we review products from more than 150 of our financing partners, and the independence of our consultants is absolutely guaranteed. That means we can find you an ideal mortgage on the best possible terms.