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Tips for Switching Mortgage Deals

Submitted By: Adonis Green in Finance Tips category

Mortgage loan, popularly called mortgage, is a loan against the property. A bank issues mortgage loan and takes custody of the real property of the person who is taking the loan. The custody is restricted on paper. The bank becomes a co-owner of the property and can take into its custody in case of non-payment of the loan. Mortgage is a complex type of loan having many facets. If you are going for such a loan for your new house or so, you need to study and understand the current financial market scenario. It is very difficult to assess the future in the financial world; however, by reading columns and reviews of experts, you can gauge the potential in different mortgage offers and deals. Here you will find the basics of mortgage deals and tips for switching mortgage deals.

Types of Mortgage

There are various types of mortgage loans that are targeted towards different classes of people. You need to asses your ability to pay the loan. You also need to assess your future income level.

Term Mortgage: In this type of mortgages, the principle amount is not amortized over a certain period of time and you need to play only the interest till the prefixed date. Once the loan is matured, you need to pay the principle amount in lumpsum.

Prepayment: Some type of mortgages restrict borrowers from paying the amount beforehand and some may charge penalty for doing so.

Interest: Interest of the loan may be fixed for a lifetime of the loan or can change with the market. It can also have some other patterns which include both fixed and flexible attributes.

We are here going to discuss the third type of mortgages, where the interest payment is varied across different plans. As we said earlier there are three sub-types under the interest mortgages head.

Fixed Rate of Interest: in this type of mortgage, you need to pay the same amount of installment till the end. Both the components, the principle and the interest are fixed for the entire term. This is a case where the risk remains with the bank and you need worry about future turbulences in the market. But if the market rates go down, you find yourself paying more amount with your fixed rate.

Variable Rate of Interest: This is a type of mortgage where the interest rate is fixed for some time period and then it becomes floating. For the specified period, the interest rate is usually lower when compared with fixed rate mortgages; this is done to compensate the risk the borrower is going to take after that specified date. This type of mortgages are popular in developed countries where markets stay normal for a long time.

Sometimes, you find yourself paying much more to the banks than anticipated. This is frustrating and can take a toll on your financial planning. You always have an option of switching the mortgage plans. You can also change the lender if you are not satisfied with yours. This is a legal process that takes two to three weeks. You may need to pay some charges for any type of switching. Here are some tips for switching mortgage deals.

  • Compare the benefit of going on a lower rate with the penalty that you are paying for switching

  • If the mortgage value is more than your house' s value, it would be difficult to re-mortgage. In this case, try to maintain a clean record of payment.

  • If you are not working in the same company and have changed your job recently, you may find it hard to switch. So plan things very carefully.

  • Most of the times, the new lender pays the valuation and legal charges. If this is not the case with yours, think twice.

Especially, when you are re-mortgaging and changing the lender, you need to be very careful. The first thing you need to do is to understand your current deal. Sometimes you may underestimate the provisions of your own deal. You may then shop for the best deals in the market and compare the real-time benefits and losses. Give yourself some time, for it may be one of the biggest financial decision you take in your life. If you are not sure about something do not go for it; never rely on someone else' s intellect unless he or she is an expert.

Keep an eye on the markets and try to analyze the future trends. If you are not sure of your assessment, consult with an independent financial adviser. Read all the documents carefully, no matter how small the font is. It is possible that you make mistakes while switching, if you make one, analyze it and prepare yourself for better opportunities in the future.

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