SVR -v- Fixed Rate Mortgages - Is it Time to Switch?

If you're currently better off thanks to your mortgage provider's low standard variable rate (SVR), you probably won't be considering a switch to a new mortgage deal. However, with fixed rate deals currently at a low level, and the possibility that interest rates will start going up, you may want to think again.

What's next for rates?

No-one knows when - and how quickly - the base rate will rise, but it is quite possible that the next move will be upwards.

In fact, while the Base Rate looks set to remain at its current level for some months yet, it is widely anticipated that inflationary pressures will ignite a series of hikes potentially later this year - and on into 2010.

If rates do move up rapidly, this could prove very uncomfortable for anyone still on a variable rate - and particularly for those who have got used to making reduced monthly repayments.

Negative Equity

House prices are low at the moment, and are likely to still be low when rates do start to rise, which means that many homeowners will be at the mercy of higher interest rates without being able to remortgage, because of insufficient equity, or negative equity.

Negative equity is where the amount you have borrowed from your mortgage lender exceeds the value of your property - and can make it very difficult to remortgage. This is one reason why you might want to consider taking action before you find yourself in this situation.

Benefits of an SVR

As SVRs are typically around 2% above the Base Rate, this historically meant an expensive hike in mortgage repayments at the end of a mortgage deal period, which also meant you could usually save money by switching to a new deal. However, with the base rate on hold at an all-time low of just 0.5%, some lenders' SVRs have decreased dramatically - prompting many borrowers to delay tying into a new deal.

Nonetheless, while cheap SVR deals can be favourable for the short term - as this means low monthly repayments - these deals could become unaffordable very quickly if interest rates start to go up again, as your monthly repayments could rapidly rise.

Benefits of a Fixed Rate Deal

As it's unlikely that longer-term fixed rates are going to get much lower, homeowners might want to consider locking into a fixed product. A fixed rate mortgage lets you know exactly what your monthly repayments will be for the length of the deal, and allows you the peace of mind that repayments won't rise during that time.

Given that fixed rates have fallen quite a lot in the past year (five-year fixes at less than 5% are currently available), if you are interested, make sure you shop around for mortgage deals to find the right one for you.

And finally-

Before taking the plunge, make sure you do the maths to work out how much you could be paying on your SVR if rates start to climb, and then compare this with any potential savings you could make by remortgaging to a fixed rate deal.


Find out more about SVR vs Fixed Rate mortgages at http://www.confused.com/mortgages

Mortgage Interest Rates Keep Steady

Mortgage interest rates were virtually unchanged this week. The 30 Year rate stayed even at 6.52. The 15 year rate moved up a little from 6.07 to 6.10 and the 5 year arm moved down from 6.07 to 6.05. The only rate that moved much was the one year are which fell from 5.27 to 5.22. The one year Arm had the biggest fall last week as well. So in total for the last two weeks the 1 year arm has fallen from 5.49 to 5.22 while the other 3 major mortgage products have not fallen more than .11. Why the one year ARM is looking so good is another question. A high percent of the foreclosures the country is currently dealing with are from ARM based mortgages. So it seems odd to encourage ARMs when they are partially responsible with the current mess we are in. Of course the people in charge of the various mortgage companies didn't lose billions in shareholder wealth in just two years by making prudent decisions. So who knows what their current strategy is. Here are mortgage interest rates for the major mortgage products for the last few weeks.

August 7,2008
30-yr 6.52 15-yr 6.10 5-yr ARM 6.05 1-yr ARM 5.22

July 31,2008
30-yr 6.52 15-yr 6.07 5-yr ARM 6.07 1-yr ARM 5.27

July 24,2008
30-yr 6.63 15-yr 6.18 5-yr ARM 6.16 1-yr ARM 5.49

July 17,2008
30-yr 6.26 15-yr 5.78 5-yr ARM 5.80 1-yr ARM 5.10

July 10,2008
30-yr 6.37 15-yr 5.91 5-yr ARM 5.82 1-yr ARM 5.17

As always what do all these crazy numbers mean. To put these numbers in perspective lets see what these rates translate into for a mortgage on a 200k house.

August 7th
30-yr $1266.76
15-yr $1698.53
5-yr ARM $1205.53
1-yr ARM $1100.69

July 31th
30-yr $1266.76
15-yr $1695.28
5-yr ARM $1208.11
1-yr ARM $1106.88

July 24th
30-yr $1281.28
15-yr $1707.22
5-yr ARM $1219.75
1-yr ARM $1134.32

On the one hand I am usually pretty against ARMs. But a difference of 166.07 a month is pretty hard to ignore. If you are thinking of getting a 1 Year ARM this my advice. 1) Make sure you have 12 months of mortgage payments in a liquid account. 2) Watch the rates over the next year and wait for rates to come down a bit. If they don't come down and instead come up make sure you can afford to refinance at a higher rate. 3) this should be obvious from point one and two but if you are getting a 1 Year Arm dont get anywhere near your maximum loan amount. So if you are approved for a 300k loan it might be ok to get a 1 Year ARM if you are buying a house that is 150k-200k. If you are approved for a 300k loan and get a house for 280k get a 30 Year loan its simply not worth the risk. With an ARM your mortgage rate will simply start to flucuate after a year unlike a balloon where you are forced to refinance.

Guest Post by Escapeso Realty which is a small brokerage in Austin Texas. Their site provides updated graphs on mortgage interest rates. They also provide a free mortgage calculator along with a mortgage rates widget