Differences between different kinds of mortgage?

JuliusCaesar

Now that there are no tracker mortgages left - the only kind I was familiar with- can anyone enlighten me as to Variable Mortgages which seem to be the only kind on offer these day?

If you go Fixed for a period, does that make the mortgage more expensive?
Can the individual bank set its own rate for the mortgage?
Does it make any difference whether I chose one bank over another?
Is there anything I should really watch out for with variable rate mortgages?

Any help or comments welcome!

Frowzy

Julius,

I'm not an expert but I know the following:

Any mortgage is basically the ECB plus the banks profit. So if you had a 1.1% tracker, that means you are paying the ECB rate plus the banks 1% profit.

So if you have a variable there again it's a kind of tracker also, but the banks profit margins are higher. It could be ECB + 2% or whatever. The ECB rate can change at any time and the bank can also increase (or decrease) their profit margin at any time. You're open to change on practically a monthly basis.

A fixed rate is again the ECB + a profit margin again, but it's a fixed amount. This is both a gamble by you and the bank. if the ECB rate changes at all during your fixed term then your rate will not change, this is a plus for you if the ECB rate goes up but it's bad for you if it goes down (Which it did recently). There again if it goes up - which we all know it did - then your mortgage will not go up - bad news for the bank cause the rise is interest is coming out of their profit instead of directly from you.

If you go Fixed for a period, does that make the mortgage more expensive?

Depends on the rates, you could fix now at a lower rate than the current variable, but if the ECB drop the rate again (which they are said to be considering) then you will end up paying a higher rate, but if they raise the rate then you would be quids in with a fixed rate, fixed is always a gamble.

Can the individual bank set its own rate for the mortgage?
They all base their rates on the ECB rate, anything they charge above the ECB is basically their profit. Each bank will have different profit margains, so yes they will set their own rats.

Does it make any difference whether I chose one bank over another?
The only difference is their rates, you should shop around. Before the current crisis some banks paid your legal fees for you, doubt you'll get this now though, you'll be lucky to get mortgage approval from most of them!!!!

Is there anything I should really watch out for with variable rate mortgages?
Just try to get the best one possible. Shop, Shop, Shop!!!


Does this help you at all, dunno what to advise you but shop around. It's an uncertain time to be signing up to a mortgage. Go to all the banks, if you're taking out a new mortgage and have a good deposit then you are in a good postion to bargain. Best of Luck!

F

antoinolachtnai

The above is mostly true. The only problem is that it is now costing the banks a good bit more than the ECB rate to borrow money on the international markets. That is why they no longer offer trackers.