What is an introductory offer? When you take out a mortgage or move your mortgage, your proposed lender may offer you an introductory home mortgage rate. Introductory offers are normally in the form of a reduced interest rate; the most common form is a set percentage below the standard interest rate. By doing this, the lender knows that you will consider their offer much more seriously and the short-term gain could well outweigh any other costs. The fact is that your home mortgage rate is going to be one of the most important things in your financial world for a great many years and you should seriously consider exactly what you are getting yourself into and whether it offers exactly what you need it to. The fact is that by choosing the right mortgage that you believe will save you money over the whole life of your loan will be the best decision you could make but sometimes the introductory offers are just too much to miss out on and can detract attention away from the lifetime home mortgage rate. What type of lifetime deals are there? Strictly speaking there are no deals as such, but there are great offers that mortgage companies will advertise once in a while and by taking advantage of one of these you could find yourself paying back a lot less than you expected. An ARM or a fixed rate mortgage? An ARM mortgage is an adjustable rate mortgage and there is obviously a slight gamble involved in selecting one of these. If interest rates keep rising, then your mortgage will keep rising too but an ARM can only rise by a maximum of 2% per year and 6% over the whole life of the loan. In contrast a fixed rate has one fixed home mortgage rate that won't rise over the entire life of the mortgage and, on the other hand, will never drop either. ARM mortgages are often sold with a low first year home mortgage rate in order to attract buyers but after that initial year it is likely to start rising. While it can only rise 6% over the life of the entire loan, then this can double your repayments after just three years; not a position you want to find yourself in. The type of mortgage for you will depend on your circumstances, most importantly the proposed length of your mortgage. If you intend to move house in 3 or 4 years then the sweetener that your lender has offered for the first year will probably be enough to make an ARM a profitable option for you. On the other hand if you have no intention for moving for 30 years then the fixed rate would be the right choice for you. The security and peace of mind that your home mortgage rate is never going to rise will set your mind at rest and eve while mortgage rates are dropping you will be able to find solace in the fact that yours will remain at that level even when they rise again. Copyright Stephen C. Dayton 2005 |
