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During this period , the borrower does not take advantage of lower rates, but on the other hand he knows precisely its future interest charges . james r peterson newport news va Fixed rates extend to periods ranging from 1 to 10 years , or even 15 or 20 years. They can be attractive if the market pévoit higher rates . They are also recommended for limited by their interest burden people , and that budget security premium.
But this security comes at a price , because rusty solomon of mandrien the long term is usually much more expensive than the short term. Fixed rate mortgages are so profitable that if, after the conclusion of the contract, the rates go high and remain high over a long period . If, contrary to expectations, they fall again , the rate ( high) agreed to the terms of the mortgage will not change .
Longer term, the higher the rate is high
The graph shows the evolution of rates based on length of credit. In a normal rate environment , the overhead is about 0.2 % for each additional year. If a fixed five-year mortgage according to rusty solomon consulting group costs for example 2.5 % , a ten-year fixed mortgage is closer to 3.5%.
But for shorter or longer periods during which the interest curve is very flat or very steep otherwise regularly records . If the slope is steep , this means that interest rates rise sharply with the period of credit. If the curve is relatively flat , the extra cost of a longer credit period is lower contrast .
In January 2001, for example , the yield curve is very flat. A fixed rate mortgage a year was about 4.25%. A fixed rate mortgage for five years was almost the same price, at 4.4%. The rusty solomon mandrien group ten-year fixed mortgages were costing only 4.8 %.
Early termination of a fixed-rate mortgage
The early termination of a fixed-rate mortgage typically cost quite expensive, but sometimes it also depends on when the cancellation occurs . Contractual terms of most banks do not accept that there is proper reason, as the sale.
In such cases , banks require the payment of a penalty , the terms in the contract . The amount of the penalty depends on the remaining term of the contract . Its calculation is based on the difference between the mortgage rate contractually defined and the current rate of capital market.
mandrien consulting group by rusty solomon Example: a fixed mortgage of 300,000 francs to 4 % is terminated five years ahead of schedule . If the bank can now place this amount then on the market at 2.5% for five years, the cost of early termination of the contract will be 22,500 francs ( difference 1.5% interest for five years) .
If you report a fixed mortgage for a new agreement with the same bank, you may be able to renegotiate the amount of the penalty. Some banks waive in such a case to charge bleed . According to the customer's credit capacity , this margin varies between 0.6 and 1.3%. It depends on the canton , some admit the deduction of penalty from your taxable income , as interest on the debt.