As we are seeing base lending rates tumbling to a historic low, now is a good opportunity to be looking for a new mortgage offer in the hope of reducing your monthly expenses, and hopefully a lot of cash in the future. But if you are thinking about starting to compare mortgage loan rates, what exactly are all of these different types of mortgages available on the market?
First, for about a third of mortgage holders, the fixed rate mortgage is the favoured type of product. With this type of mortgage you have agreed with your chosen lender that for an agreed length of time you will pay a fixed rate of interest. The fixed term duration may be a few months up to a few years, it depends on the offers available on the market. How good 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 rise in that time period, so normally the interest rate is usually lower. It is this fixed element of the mortgage that many mortgage holders do like. For the agreed period you know precisely how much you will be paying out for your mortgage. There can be no interest rate rises to impact your budget. You know that unless you move your mortgage, exactly what you will be paying.
But this is not solely seen as an advantage, it is also a disadvantage. If base rates do fall further, as has been in the news a lot currently, then the rate that you are paying doesn’t reduce. And this is the gamble of this type of mortgage. You know precisely what you will be repaying each month, regardless of whether interest rates go up or down.
Once your fixed rate mortgage has come to an end, you can possibly then have a tie in period with the lender for which you have to stay with the bank and pay the variable rate mortgage. This is the return for the bank when they have given you a good fixed rate mortgage. A variable rate mortgage is the basic mortgage that a bank will have available. It is their basic no frills mortgage and moves with the base rate, although not always matching the base rate exactly.
Usually brokers will suggest that all customers on the bank’s variable rate mortgages should review their mortgage and consider switching to another mortgage, or lender. It is usually not reduced in any way and is at risk of going up with every rate change. Some time this type of product is looked at as the bank’s way of earning money. They are typically no frills, no reductions and a sign that you need to be reviewing your mortgage. If this is what you have currently got, then it is high time that you decided to compare all mortgage rates and find yourself a new mortgage.
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