A proposed change in interest rate measures in the UK could make it far easier for consumers to compare the cost of mortgages, with the new interest rate measure offering increased transparency on the cost of borrowing. The Council of Mortgage Lenders claims that the new interest rate measure, which is known as the DAR or the Dynamic Annual Rate, will make the cost of borrowing far clearer to consumers, thus making it simpler for borrowers to compare loans in order to find the most competitive deal. Currently, lenders in the UK use the Annual Percentage Rate measure, also known as the APR, in order to calculate the cost of borrowing. When using the APR to calculate the cost of borrowing the lender calculates on the basis that the loan will be kept on over the full term, ie 25 years. However, with many people switching mortgages before the end of the 25years, the APR does not offer a true comparison. Also, when using the APR measure no fees, charges, or arrangement fees are taken into account ? the APR is based solely on the actual amount borrowed. The DAR interest rate measure will differ in that it will take into account fees, charges, and arrangement fees. It will also be calculated over the length of time that the loan is likely to be kept. This is because many borrowers that take on Home loans and mortgages decide to pay off the loan in full after a few years ? usually when a special offer such as a fixed rate runs out ? and remortgage to a better value package. Experts state that the DAR calculation will make it easier for borrowers to calculate the accurate cost of a loan, and will enable them to benefit from far easier and more accurate comparisons on similar loan deals. This will enable them to determine if and when they can benefit from switching from one product to another, and will also allow them to see how interest rate changes will affect the various costs associated with Home loans and mortgages. An official from the Council of Mortgage Lenders said that this new measure makes information for consumers more 'comprehensive' and 'meaningful', and that it could prove very useful for consumers that are not sure with regards to how long they will be keeping the home loan or mortgage on before paying it off.
In the UK there has recently been an increase in the number of new stepped rate mortgage products on offer. These products are where the lender offers a stepped phase of interest rates, usually each rate lasts up to a year before you must move up to the next, higher interest rate for the next year. For example, a first year interest rate of 5.99 per cent may be available with a second year interest rate of 6.79 per cent. Usually these type of mortgage products do not charge a fee, making them a very good offer for people coming to the end of a low rate fixed rate deal. 3 or 4 years ago, when interest rates were at an all time low, you could have picked up a fixed mortgage rate in the region of 3.50 per cent!
Imagine the panic setting in for people who initially fixed they’re mortgage rate back in 2003 or 2004. Over the years since then interest rates have continued increasing month after month.
As lenders are now withdrawing their more competitive mortgage products, these new stepped rate offers seem to be the best way forward for customers who may be living in fear of paying a higher mortgage rate.
As you can clearly see the only problem is still the initial first year stepped rate increase to 5.99 per cent in the example. This is an increase of nearly 2.5 per cent; something to bear in mind if you’re still lucky enough to be on a fixed rate under 4 per cent.
Both David20 Lynes21 & Simon Duffy are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
David20 Lynes21 has sinced written about articles on various topics from Mortgage. David Lynes is the author of this article on . Find more information about. David20 Lynes21's top article generates over 880 views. to your Favourites.