For those looking to sell their home or apply for a mortgage, an uncertain economic climate that has further been affected by the results of the recent referendum has made such decisions quite tricky. The Bank of England has moved to calm the markets by cutting interest rates to a record low level of 0.25% from the already rock-bottom 0.5%. This is one of the lowest interest rates in the country and the first one since 2009; the development means that house-owners looking to sell or prospective homebuyers will need to know which decisions are best for them.
A 0.25% reduction in interest rates translates to an average of £25 off a typical monthly mortgage but conversely means that a similar amount is lost by savers on every £10 000 they have in the bank. With so much uncertainty and new developments that affect the housing market some may be wondering what it all means for them, whether you’re thinking of buying, selling, or re-mortgaging your home. Thankfully, you can find some of those answers in the essential guide to getting the most out of your mortgage and the interest rate cut below:
Which Mortgage Should I Pick?
There is no doubt that there have been few times better for getting a mortgage than when the interest rates are as low as they currently are. As mentioned above, the rate cut translates into lower repayments and this will benefit current mortgage holders or those looking to buy a new home. With that in mind, is now a good time to buy a property or remortgage given the interest rates are so low? The answer is it is, but some analysts predict that the economic situation as affected by the Brexit vote will force the BOE to push interest rates further down in a bid to stimulate growth in the economy.
This means that while it is a great time to apply for that mortgage or renegotiate a current one, things may actually improve for those willing to wait a little longer. Similarly if you’re thinking of selling your home then you may want to wait before selling your house in order to take advantage of further rate cuts. In the current market conditions however, deciding which mortgage is the best for you is still an important step in order to get the best deal. There are two main types of mortgage, namely fixed rate and variable rate.
The most common mortgages include the following:
- Fixed Rate Mortgage: The interest charged on a fixed rate mortgage is set at the same level for a number of years. This type of mortgage can provide certainty but does not benefit from interest rate cuts and is usually higher than a variable one.
- Variable rate: As the name suggests, a variable rate mortgage means that the interest you pay can change. Those with this type of mortgage stand to benefit most as the interest rates go down and holders can overpay or leave at any time; although the rate is also subject to change.
- Tracker Mortgages: Tracker mortgages are designed to move in line with the Bank of England’s base rate but usually have a typically short life of between 2-5 years. Mortgage repayments can increase or fall depending on the rate being tracked.
- Capped Rate: A mortgage with a capped rate will generally be higher than variable or fixed rates but cannot rise above a pre-determined level.
When deciding which of the above mortgages to choose, extra attention should be paid to any corresponding fees that need to be paid for taking one out, as well as exit fees. In addition, your financial situation and available deposit will determine which mortgage is best for you.
How to Remortgage to get the best Rate
For homeowners looking to take advantage of the interest rate cut and remortgage on a better deal, now may be a good time while the lower base rate is in effect. A mortgage is most people’s biggest financial commitment, and as with other debts streamlining such a huge outlay could prove beneficial to the tune of thousands of pounds every year.
If your current deal is about to end, your property has increased in value, or you are just looking for a better rate, remortgaging has the potential to save you money. Tips on how to remortgage to get the best rate include using comparison sites, increasing the amount you’re willing to place as a down payment, and proof of good cash reserves. In addition to the already low rates, improving your financial standing is the best way to getting the best rate on a remortgage so a good credit score and income stability are also crucial.
If you’re looking to buy property or remortgage, the recent interest rate cut by the Bank of England makes it a great time to do so, provided due care is taken. Likewise those already with mortgages stand to benefit as well, particularly if you’re on a tracker mortgage. By preparing the foundations of your income and finances, as well as following the guide above, then existing and prospective homeowners could stand to benefit from the BOE’s recent interest rate changes.
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