CONAPEPANAMA

Archive for March, 2008

Messing around with our mortgage calculator I found something kind of interesting that illustrates the importance of mortgage rates on payments. If you got a 200k loan with a 30 year mortgage in 1995 the rate would have been around 9 percent and the mortgage payment would have been around $1625. Assuming you never refinanced you would pay off the loan in 2025.

The rates are relatively high and it makes more sense to lock in with a long term rate when rates are at historic lows. Second I would look into getting a mortgage before spending too much time looking for a house. Basically although rates are low lenders are still pretty picky these days about finances. In addition, if there is anything weird with your credit score finding out early will allow you to have time to fix any outstanding issues.

A fixed rate should help with your budgeting during the early years of your commitment, especially if your budget is tight. The risk – of course – is that market interest rates actually fall during this period, when you’re still committed to paying your mortgage at the higher rate.

Flexible mortgages would suit borrowers who expect intermittent changes in their financial circumstances – the self-employed, for example – who can sometimes afford to make overpayments but might equally need to pay less and take a ‘repayment holiday’ (provided a ‘reserve’ of overpayments has been built up initially). Most set interest rates on a daily or monthly basis to encourage overpayments, which in turn will reduce the life of the mortgage and thus achieve savings.