Why is it a Good Time to Lock in Interest Rates on a Mortgage?

 

It is best to lock in mortgage rates when interest rates are at their lowest. With Inflation surging high and mortgages too, the UK banks provide an opportunity to individuals to lock their mortgages at a record-low interest rate.

Earlier this date, lenders were increasing mortgage rates only to become problematic for brokers to process applications quickly. As per Money facts, “An average shelf life of a mortgage deal fell to 21 days in April 2022.” That is the lowest on the board.

With the mortgage window opening only for a short span, it is an anxious time for both the buyer and intermediary.

The perfect time to lock in a mortgage rate is now. Take action now if considering remortgaging at low-interest rates. Remortgaging applications can take up to 5 working days. It is the reason to hurry up and seal the mortgage rate now.

Why is it the right moment to act?

Interest rates rose from 0.1% to 1% last December to the Bank of England. The rates for those with 25% deposits got just doubled from 1.2% in September to 2.35% in April 2022. This is according to BoE figures and Statistics. Interest rates are rising uncontrollably. In this scenario, mortgages are bound to become costlier. Individuals should lock the mortgage now.

How are Individuals reacting to this?

According to the recent updates, maximum homeowners are opting for longer-term fixed mortgage rates. By doing so, they are seeking stability. The initial term length of a new mortgage has increased by 17%. Many institutions like Halifax offer a five-year mortgage cheaper than a 2-year fixed-rate mortgage. The reason for flexible interest rates into the mainstream is- rising house rates and the cost of living.

What does Mortgage Rate Lock imply?

Lenders offer mortgage rate locks to guarantee an interest rate for home buyers. The lender may charge an additional fee for locking the mortgage at affordable interest rates. The process includes initial loan approval, underwriting to loan closing. On completing the procedure, the rate at which individual locks the mortgage will not change. To get a low-interest rate, one should be eligible for a one-time float down option.

The application may be declared invalid or rejected if the information on the application undergoes any modification. Changes can be observed in parameters such as -employment status, income, property appraisal, credit score, and mortgage loan revision.

When to lock in the mortgage rate?

If a borrower finds a rate- affordable and comfortable, it is the best bet. It is especially favorable for someone with a “float down” option. Check the deadlines to lock-in the interest rate from your lender. Many borrowers often dwindle between whether to float down or lock in interest rates. The best route is to lock in interest rates. The ideal time to float is when the interest rate falls.

How to Get a Mortgage with Bad Credit?

To get a mortgage with bad credit, one has to improve credit performance. There is no silver bullet to securing an affordable mortgage with bad credit. As mentioned above, individuals having a less-than-ideal credit score are considered risky borrowers. Thus, prepare before filing a mortgage application form. Analise-

• Can you pay off some debts to optimism your credit report? 
• Can you arrange for a massive deposit to improve the chances of getting a mortgage 
• Are you planning to take high-interest loans for personal needs?
• What effects do these loans have on your existing credit profile?
• Do you have any risk mitigation plan to avoid losing the mortgaged property?

These concerns should be your priority before taking out an expensive mortgage. If you can delay the mortgage for 6 months until your credit score improves, you can grab a new mortgage at affordable rates.

Or if you can save for a large deposit to lock in a mortgage at the lowest interest rates now. Lenders demands at least 20% of the property’s cost as a deposit. If you can make it, you may get the mortgage. However, it is not ideal for every circumstance.

However, you may not get a 100% mortgage for bad credit. The new mortgage can be more stringent than the previous mortgage. It may be hard to qualify with unstable credit history.  

Can you remortgage with bad credit?

It is possible to remortgage with bad credit. If you have made payments successfully on your mortgage until now, it must have boosted your credit score. With a slight increase in the credit score, you may qualify for a low-interest mortgage rate.

You might have to go through stringent mortgage approval criteria on a low credit score.

Some individuals with less-than-perfect credit scores are considered unreliable to making regular payments. It is the reason they are known as “mortgage prisoners”. They remain stuck on expensive mortgage deals until their credit score improves. 

Moreover, it is challenging for these to qualify for a “low-interest” mortgage. In this case, different lenders can help the person. An individual suffering a bad credit may explore the quotations and connect with the one suitable for his situation. Different lenders have different eligibility criteria. The options will be limited. Check out the one that suits your circumstance.

Yes, you may remortgage with bad credit, but your options will be limited. Bad mortgage deals often have a high-interest rate. It makes the loan overall costly. Thus, you may not find a 100% mortgage for bad credit.

What factors apart from credit score can impact mortgage loan amounts?

Apart from bad credit, other factors may influence your mortgage loan amount:

1)      Affordability Checks

Lenders conduct mortgage affordability checks before approving the loan application. They priorities a borrower’s DTI (Debt-To-Income) ratio, which is the ratio of total debts to total income. It should be below 36%. The ratio is identified by screening the following factors on the credit report-

• Student loan repayments 
• Credit card debts 
• Rent 
• Car payments 
• Child support 
• Loans

Thus, check your credit report for these parameters before applying for a mortgage loan. For approval, your monthly debts should not surpass your monthly income. If seeking one on bad credit, check the parameters using a bad credit mortgage calculator.

2)      Employment

Lenders prefer borrowers with PAYE and full-time employment. If you work as a part-timer and a full-timer, it may be profitable in terms of loan approval. Self-employed, retired persons can also qualify for a mortgage by revealing income source proof.

 Students cannot qualify for a mortgage as the primary requirement for mortgage qualification is- one should share at least 3years of job experience. Some self-employed individuals may get a mortgage with 2 years of employment experience and a small deposit.

3)      Age

Many lenders have a defined age limit for mortgage approval, while others may provide a mortgage regardless of age if the borrower meets the eligibility. If you apply for a short-term mortgage, your monthly repayments could be higher. For a residential mortgage, one has to be above 18 years of age and for a buy-to-let mortgage, one has to be 21. 

4)      Property Value

The property value will depend on its size, location, type, and its state. The deposit amount you will need to save may vary. When you apply for a mortgage, the representatives conduct a thorough survey of the property and calculate the ideal mortgage price you need to pay. The surveyor will highlight any issues (if any) in the property before arriving at any decision.         

5)      Type of Property

Your loan-to-value ratio could be different. It depends on the type of property you purchase. A lender may set 95% for a house and a flat or a new build 85%. 

How to choose the right fixed-rate mortgage?

Picking the right fixed rate mortgage requires taking a few parameters into account:

• Are your conditions likely to change? If yes, then probably you should consider a short-term mortgage.
• If the Bank of England interest rates are bound to rise, you can shift to a fixed rate mortgage. 
• If you prefer consistency, you can switch to a fixed-rate mortgage.  
• If searching for one on low credit, calculate the best deals for a fixed mortgage using a bad credit mortgage calculator.

Bottom Line

It is the right time to tap into the best mortgage deals and remortgage to a lower interest. Explore the existing deals and safeguard your mortgage from rising repayments.

Description: the UK is experiencing events post its declaration of short-term affordable mortgage deals. The blog states the ways individuals should approach the situation.