As we are seeing interest rates plummeting to an all time low, now is an excellent opportunity to be searching for a new mortgage offer in the hope of reducing your monthly outgoings, and hopefully a lot of money over the long term. But if you are beginning to compare mortgage rates, what exactly are all of these different types of mortgages available on the market?
To start off with, for about a third of mortgage holders, the fixed rate mortgage is the preferred type of product. With this type of mortgage you agree with your chosen lender that for an agreed amount of time you will pay a fixed interest rate. The fixed term period might be a few months up to a few years, it depends on the offers you can select from on the market. How attractive the interest rate is will vary by on how long you are fixing it for. The shorter the time period, the less risk there is to the lender that the rates could increase in that time period, so normally the interest rate offered is usually more favourable. It is this fixed element of the mortgage that many home owners do want. For the agreed time you know precisely what will be spending on your mortgage. There can be no interest rate increase surprises to affect your budget. You know that unless you move your mortgage, exactly what you will be paying.
But this is not only seen as an advantage, it is also seen as a disadvantage. If interest rates do fall further, as has happened drastically currently, then the amount that you are paying doesn’t fall. And this is the chance of this sort of mortgage. You know what you will be paying each month, regardless of whether interest rates go up or down.
When your fixed rate mortgage has come to an end, you can possibly then have a tie in period with the lender during which you have to remain with the bank on their variable rate product. This is the return for the lender when they have given you a particularly good fixed rate mortgage. A variable rate mortgage is the basic mortgage that a bank will offer. It is their basic no frills mortgage and changes with the base rate, although not always following the base rate exactly.
Usually mortgage brokers will suggest that all customers on the lender’s variable rate mortgages should review their mortgage and consider switching to another mortgage, or bank. It is usually not discounted in any way and is at risk of going up with every rate change. Quite often this type of product is seen as the lender’s way of making money. They are typically no frills, no reductions and a sign that you should be looking at your mortgage. If this is what you have got, then it is well high time that you decided to compare today’s mortgage rates and find yourself a brand new mortgage.
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