Mortgages

[Kathyan]

Can someone explain to me why mortgage re-payments go up when the interest rate rises? Why are they not fixed for the duration of the mortgage like a personal loan?

[redcrx]

i suppose they could be fixed for the full term (20/30/40 years) just as they can be fixed for part of the term, ive seen some fixed for 15 years.

People prefer a fixed period for a short amount of time and then to shop around for another deal. There isnt a market for a full term fixed because people would probably find that the fixed rate was set quite high to cover any future rises.

Bank loans tend to be a much higher rate than a mortgage but they also tend to be for shorter periods of time.

[chitchat]

Your payments will go up when the rate you are paying is a variable rate. If you fix the rate they wont change unless you change the mortgage term etc. Mortgages are long term lending and no knows how rates will change over the long term. You would not be happy if you fixed at a high rate for 25 years and the rates came down soon after and you couldnt get out of it without a hefty penalty. Thats why most lenders fixed rate are between 2 -5 years.

[chitchat]

Personal loans - bank loans are unsecured lending and are more of a risk to the banks. Thats why the rates are higher than mortgage rates.

[loonytunes]

To obtain the funds for one mortgage, the lender has to attract savings from 6 investors. They will not be able to do this if they cannot attract investment and they do this by increasing savings rates to an attractive level. Thats why they increase mortgage rates.

[Whickerman]

I fixed my mortgage for 10 years - enquire at your bank, they'll be delighted, as initially the fixed rate is higher than the variable one. It's common practice here in Ireland.

BTW - I notice that the BoE has raised interest rates again. Did you guys know you're paying something close to 2% higher than the eurozone?