As we are seeing base lending rates tumbling to an all time low, now is an excellent time to be looking for a new mortgage product in the hope of saving some monthly expenses, and hopefully a lot of money over the long term. But if you are beginning to compare all 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 favoured type of product. With this type of mortgage you have agreed with your chosen bank that for a certain length of time you will be charged a fixed . The fixed term duration might be a few months up to a few years, it depends on the offers available on the market. How low the interest rate is will depend on how long you are signing up to it. The briefer the time period, the more reduced the risk there is to the lender that the rates could increase in that time period, so normally the interest rate offered is usually better. It is this fixed aspect of the mortgage that many home owners do want. For the agreed time you know precisely what will be spending on your mortgage. There will be no interest rate rises to upset your budget. You know that unless you move your mortgage, precisely what you will be paying.
But this is not solely seen as an advantage, it is also seen as a disadvantage. If base rates do fall further, as has been in the news a lot currently, then the amount that you are paying doesn’t benefit. And this is the risk of this type of mortgage. You know exactly what you will be repaying, regardless of whether interest rates increase or decrease.
After your fixed rate mortgage is over, you can possibly then have a tie in period with the lender during which you have to stay with the bank on their variable rate mortgage. This is the return for the lender when they have given you a very good fixed rate mortgage. A variable rate mortgage is the basic mortgage that a lender will offer. It is their basic no frills mortgage and moves with the base rate, although not always moving with the base rate exactly.
Usually mortgage brokers will advise that all customers on the bank’s variable rate mortgages should look at their mortgage and consider moving to another mortgage, or bank. It is usually not discounted in any way and is at risk of increasing with every rate change. Some time this type of mortgage is seen as the bank’s way of making money. They are typically no frills, no reductions and a sign that you should be reviewing your mortgage. If this is what you have currently got, then it is well high time that you decided to compare today’s mortgage rates and find yourself a new mortgage.
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