HSBC: Choosing The Best Mortgage Option
[Advice column by HSBC Bermuda]
What is an interest rate? Also, what is the difference between Fixed Rate Mortgage and a Variable Rate Mortgage?
Sounds like you’re exploring your options to purchase a home, Congratulations! I encourage you to book a Free Financial Planning appointment. We will help you determine which option is best suited for your personal circumstances, ensure you receive the most competitive interest rate and explore your down payment options.
We can get into more detail at your appointment, but here are the high level answers to your questions:
Interest Rate
An interest rate is a percentage charge on the outstanding balance of your mortgage.
Fixed Rate Mortgage
With a Fixed Rate Mortgage your interest rate will stay the same over a set period of time (typically 5 years). This means that your payment amount will be the same every month.
This will enable you to budget more easily and manage your expenses. This can be particularly important as you embark on other major life events [having children, getting married, etc] that will increase your expenses. An interest rate rise could put a strain on your finances; a Fixed Rate Mortgage will protect you from this.
It is important to remember that on a Fixed Rate Mortgage you are restricted on the amount of overpayments you can make. If you are planning on making over payments, contributions to your Mortgage above your agreed monthly payment, this may not be the right product for you. It is important to consider if you realistically will make overpayments in the first five years. If you are buying your first home will you realistically have additional spare cash to pay off your Mortgage, or will this be absorbed by costs of new furniture or decorating your new home?
Variable Rate Mortgage
Your interest rate can fluctuate. As a result your payment can decrease or increase month over month. This can make budgeting more challenging over longer periods of time as it is difficult to predict interest rate movements.
An interest rate rise could put a strain on your finances so it is important that you have sufficient money to continue to make your monthly mortgage payments in the event of an interest rate rise.
The benefit of a variable rate mortgage is that you can make unlimited overpayments on your Mortgage provided that you give the bank 90 days’ notice of your intent to do so.
Free Financial Planning with HSBC
HSBC can help you reach your goals by developing your own financial plan! Our approach takes you through the complete financial planning process, at no cost to you. We’ll work with you to understand your particular circumstances and your financial ambitions. From there, we provide you with solutions on how to manage, grow and protect your savings to achieve your goals.
To make a free Financial Planning appointment visit www.hsbc.bm/planning or by calling 299-5959.
Issued by HSBC Bank Bermuda Limited which is licensed to conduct Banking and Investment Business by the Bermuda Monetary Authority.
