To stick or twist? – Whenever you are faced with a mortgages payment plan it can be like a game of cards – do you stick or twist? Okay, you could reasonably argue that either way it is a gamble what type of mortgage interest rate you take, fixed rate or otherwise.
I see stick as sticking with the same mortgage interest rate for a fixed term of your choice and twist as going with any other mortgages rate that is not fixed.
Don’t gamble – When you elect to take a fixed mortgage rate you are safeguarding against interest rates going up. Don’t cry if they go down as the whole idea of a fixed rate is to give you security and the ability to budget. Without a fixed rate you really are gambling as if the interest rates go up then so do your monthly mortgage payments.
Pro’s and cons – I’ve experienced people almost in tears because the fixed mortgage rate they took out halved so they lost out big time. What they didn’t lose was their home. On the flip side of the coin I’ve seen people made homeless because they elected not to have a fixed rate and the rate doubled.
Redemption penalties – In football terms a penalty is a big advantage to one team and a disadvantage to the opposing team. So it may not surprise you to learn that the same goes for a redemption penalty. When you “redeem” your mortgage (move to another lender basically) you pay a financial penalty with a fixed rate mortgage. However, it is the norm not to pay any penalty where there is no fixed rate in place.
Decisions – decisions – The decision whether or not to stick or twist is largely dependent upon whether you are risk averse. If you don’t like risk (gambling) the decision whether to stick or twist should be easy, you stick of course. But always bear in mind that if you ever need to redeem you could pay dearly in the form of a redemption penalty. Think long, think hard as, “Decide in haste and repent in leisure.”
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MortgageWatchdog.co.uk
