What is the mortgage entry rate?
This is the interest rate initially applied to a loan for the purchase of a property. The main purpose of the loan is in fact the purchase of a home (even if there are various types of mortgage with different purposes) and, to finance this operation, the bank that provides the loan requires the payment of an interest rate to its client. The rate can be fixed or variable: however, attention must be paid to the entry rate and any changes to it.
A fixed-rate mortgage establishes that the interest rate applied to the repayment installments of the capital never changes for the entire duration of the amortization plan: this means that the consumer can be calm about the regularity of his payments. This calculation mechanism implies that the initial rate will correspond to the one then applied also to the subsequent installments, called a steady rate (unless it is a mortgage with an option).
The calculation of interest is more delicate in the case of the rate of entry of a variable rate mortgage
The interest on this loan is in fact not fixed and changes over time, following the trend of some reference indices at the international level, such as the rate and, above all. The bank will then request payment of this rate with the addition of a spread, which corresponds to its profit. The variable rate is therefore in itself a potential source of payment instability (even though in an age of interest rates at historic lows it appears undoubtedly convenient compared to the fixed one), to which is added the risk element constituted by the interest rate ‘entrance.
It is necessary to pay close attention to offers of an excessively low entry rate, for example around 1%: this could, in fact, constitute a promotion to attract new customers, but probably will not correspond to the steady rate, which will be, at a minimum, burdened by a spread and therefore will be higher. If you accept a variable rate mortgage, with a very low initial rate, you should be aware that this will probably not last long, usually three to six months, and then it could increase.
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It is good not to just ask what the entry rate is, but to consider the size of the spread and the current rate, perhaps in the form, an index that it also counts ancillary expenses.