Mortgage rates are instrumental in determining the affordability of home loans for anyone who wants to get on the property ladder.
While you may understand the basics, drilling down into the details and learning more about interest rates and how they apply to mortgages is sensible. So without further ado, here are handy facts to help you make informed decisions.
Interest rates typically rise before they fall
Holding off on securing a mortgage in the expectation that rates will fall in the near future is a bad idea. This is because at any one time it is statistically more likely for them to increase rather than decrease.
It is better to avoid worrying about picking the perfect time to get your first mortgage or refinance. Instead, compare various mortgage rates right now and get the best deal in the current market conditions.
Other factors can impact the affordability of a property more than mortgage rates
Obsessing over the interest rate of a mortgage package without also considering the other costs involved in buying a property is a common mistake, and one which can come back to bite buyers.
You need to look at the big picture and not only consider how much interest you will be paying on your home loan, but also other costs like property tax, maintenance, moving fees and commuting expenses where relevant.
Rates aren’t directly tied to the economy
While outside economic factors certainly have an impact on mortgage rates, you should not assume that they completely mirror the boom and bust cycle of the broader economy.
The COVID-19 pandemic was a great example of this; while there was widespread disruption in many industries, home loan rates remained low and actually fell in many regions.
The prime interest rate can be misleading
Another aspect of the mortgage market which it is tempting to fixate upon is the prime interest rate, because while this may be a seemingly solid indicator of the overall state of play in the lending market, it does not actually tally closely with the general level of the interest rate curve.
Indeed the prime rate can be significantly higher or lower than real world rates that most customers can access, so doing more research and weighing up your options is wise before you dive into any deal with a lender.
Interest costs can be overtaken by rising property prices
Over the course of a 25 or 30 year fixed term mortgage, you will clearly see that the interest you pay off each month mounts up to a significant amount on top of the original price of your home.
This can seem daunting and even feel like you are overpaying for the property in the long run. However, since the housing market tends to rise year on year, it is more than likely that your home will increase in value at a greater rate than the interest of your mortgage, so when you sell it, interest costs will be less of a concern.
Refinancing costs vary depending on the mortgage you pick
This is one of the trickier aspects, but one which can make a major difference to the appeal of particular mortgage packages.
In essence, the type of deal you strike with your lender may either make refinancing in the future more or less expensive.
Obviously this depends on your circumstances and the state of the market at the time, so get expert advice and be aware of all the terms and conditions which apply to the home loan product you choose.