The svr is typically the rate of interest that you would be charged by a lender if you were not on a ?special deal?. The rate of interest varies and normally moves up and down in line with movements in the Bank of England base rate. This means that if you have a mortgage which is based on a svr your mortgage payments will fluctuate from time to time. However, if you took out a two- year fixed rate mortgage this is, by definition, not the lender's standard variable rate. The fixed rate will apply for the two year period and after that the lender would normally charge you their standard variable rate.
Most people would normally then be better off if they could get another ?special deal?. At the time of writing (10 July 2007) standard variable rates are moving to in excess of 7.5% whereas you can still get fixed rate mortgages at less than 7.0%.
Many people are on svr mortgages because they have simply never thought to re-mortgage. They have not looked to see whether the lender that gave them the good deal two, three or five years ago is still giving them a good deal now that they are not on the rate they originally got.
The simple way to check that you are still getting a good deal is to use a mortgage comparison site. This will show you what the best deal available happens to be ? it is better to check this than to just hope that it is the current mortgage that you have.
Lynn Reaser, chief economist for the Investment Strategies Group at Bank of America, expected the pause in rate hikes "because of the fact that interest rates are approaching the higher end of what may be called a normal range, and in view of the slowing in the economy, which is expected to ultimately dampen inflationary forces." However, Reaser says it's too soon to predict whether interest rates have reached their peak for this cycle.
Your home equity line of credit (HELOC) is an adjustable rate loan, similar to other adjustable rate mortgages (ARMs). However, changes in the market affect your HELOC a lot faster than standard ARMs because interest on a HELOC is calculated daily rather than monthly as it is with standard ARMs. Thus, if the prime rate adjusts higher at the end of the month, your HELOC rate goes up the very next day. Also, HELOCs have no adjustment caps, which limit the size of any rate change. Fixed-rate loans, on the other hand, don’t carry any risk of rate hikes and adjustment caps because the interest rate stays fixed through the life of the loan.
If your line of credit payment continues to go up, it may be a good idea to refinance into a fixed-rate home equity loan (second mortgage), especially if the rates on your existing first mortgage are good. Although there is a pause in the interest rate hikes now, inflation continues to rise, which may mean the feds continue to raise the prime rate, and your payment rises again. “If I don’t see some moderation in inflation, it’s going to be very hard to argue that we can pause again," said John Silvia, chief economist at Wachovia Economics Group.
Some HELOCs are convertible into fixed-rate loans at the time of a drawing. If you have this option, you should speak with your lender about converting your HELOC to a fixed-rate loan. Otherwise, see your lender about refinancing your HELOC into a fixed-rate second mortgage
Both Francis Ghiloni & Maria Ny 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.
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