I heard there are 8500 mortgage products out there. How different can they really be?

Posted on 16 December 2007

Hi Katie, I heard there are 8500 mortgage products out there. How different can they really be? - grateful for your insight. Thanks,

Clive

Hi Clive,
 
That figure is about right, but it's the fact that they are all so similar which makes it so difficult to chose the right one. As rates increased and monthly payments increased, borrowers started offering lower rates, which were subsidised by a large upfront fee, effectively front-loading the payments. If you imagine this multiplied, there are thousands of combinations. A lender for example could offer a two-year 5% rate with a 1% fee, or a 4% rate with a 3% fee, any combination of which would basically make them 11% interest in 2 years, or they can assume an average loan amount and offer a set fee. This just exploded in 2007 as borrowers crambled for low enough rates and had the equity from the last few years to pay a fee for them, and lenders' technology for cost modeling improved.

As for as you the borrower are concerned, you need to calculate the total cost to you for your specific loan amount, over the few years you intend to keep the mortgage. An online facility with calculators such as ours can do much of the work for you, but speaking to an actual advisor is the only way to know that you're being recommended the right one for your needs. products don't promise to get any less complicated, as they evolve to meet a diversity of borrowers' needs, so 2008 will certainly be the year to take advice.

Category: First-time buyer, The application process explained

 

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