Introduction

As the name implies, a fixed rate mortgage is a mortgage for which the interest rate is unchanged for either the full term of the loan or for a specified period of time. This means that the borrower has to pay a particular amount as instalment per month based on a certain rate of interest, which would not change throughout the period for which the interest rate is fixed. Generally fixed rate mortgages are of two types (Fixed mortgage rate for real estate, 2010).

1)    Fixed mortgages for 30 years: This is the most preferred fixed rate mortgage, since for thirty years the amount to be repaid per month remains the same. The disadvantage is that if the bank’s variable interest rate falls below the fixed rate, the borrower would be at a loss. Also, for the risk taken for 30 years the lender might charge a higher interest rate.

2)    Fixed mortgages for 15 years: The conditions for this mortgage are the same as for 30 years. The difference is that the repayment period is only 15 years. Therefore the interest rate would be lower compared to the former. When a mortgage loan of thirty years is to be refinanced (remortgaged) then this type of product is preferred by the borrowers. As a rule, the equity of the property under mortgage would be increasing. So more amount could be obtained as loan during refinancing.

Depending on the lender, interest rate generally varies from 5 to 6% for an initial period which varies from 3 to 5 years. Later on, interest rate would be between 7 to 8%. About 95% of the value of property would be given as loan. There are some lenders, who keep the interest rate same throughout the period of repayment, but the amount available as loan would be only about 85% of the value of property. (Mortgages – Compare Best Fixed Rate Mortgages, 2010). Fees for arranging loan vary from ₤900 to ₤1000.

Which fixed mortgage should you go for?

This depends on your individual situation and requirements. For instance, what kind of loan-to-value are you looking for? The higher the LTV, the higher the rate of interest. Your credit score also determines the rate of interest charged by the lender. The term of the loan also has a bearing on the rate of interest. All factors considered, the best fixed mortgage for you is the one that gives you enough money and a repayment plan that does not strain you.

Conclusion

So, it could be seen that two types of fixed mortgages are there, for 30 years and 15 years. Both are having their own advantages and disadvantages. For both cases, the repayment conditions and even the interest rate offered by different lenders vary. Therefore, the borrower has to make a study of the lenders who offer the mortgage in order to take correct decision. Therefore, the borrower has to make a study of the lenders who offer the mortgage in order to take correct decision. Read the fine print too before committing to a particular mortgage. As the saying goes “The devil is in the detail.”

If you are a homeowner and in need of some extra cash, one possibility you could consider is getting a second mortgage. If the present value of your house exceeds the amount you paid for it (your mortgage total), then you have equity that can be used to borrow more money. This is basically a loan that is secured on your house – and is sometimes termed a further advance.

Many people commonly use second mortgages for such expenses as home improvements, the purchase of a second or vacation home and to consolidate other debts with a lower interest rate. Of course, you may also be able to use the proceeds of your second mortgage for other options but you should always keep in mind that you are putting your home at risk for getting a second mortgage and be sure you can justify the risk for that purpose.

One of the major disadvantages of getting a second mortgage is that the interest rate will usually be higher than your first mortgage. Lenders insist on higher interest rates because they understand they won’t be the first in line in the event that you default on the loan and they need to protect their assets, so they do this with higher interest rates. Of course, the rates are typically lower than what you could obtain with any other type of loan and much lower than credit cards.

If you are paying a comparatively high rate on your second mortgage, you should examine the possibility of getting a HELOC to refinance it. You could save substantial money if your current interest rate is high enough, and you could use some of the money to improve your property, thereby further increasing its value and your equity. If you pursue this however, make sure you shop around for the best rate. You should also try to negotiate interest rates and the fees you’ll be charged for the HELOC. You could end up in a much better financial position.

When you think about a second mortgage, what do you think of first? Which aspects of a second mortgage are important, which are essential, and which ones can you take or leave? You be the judge.

Great news! You qualify for second mortgage. Now what would you like to do with the second mortgage? It will be your answer to this question that determines whether or not your second mortgage is your friend, or your foe. That seems to be an awfully strange way to look in a second mortgage; however that’s exactly what the mortgage will be.

In a fixed rate mortgage, as the name suggests, the interest rate for your mortgage is fixed for an appointed period of time which in Canada is usually between 6 months to 25 years. The good thing about a second mortgage with a fixed rate is that you know how much you are paying for a set period of time which is technically called ‘term’.

The interest rate of a second mortgage tends to be higher than the primary mortgage, due to the fact that if any problems occur, payment would first be made to the first mortgage.
Lastly, don’t forget the additional closing costs such as, appraisal fees, application costs etc. If you aren’t capable of paying these fees, you may not be able to take out that second mortgage on your property.

If you have to qualify for second mortgage, please think it through very carefully and consider all your options before making a final decision on taking out a second mortgage application.