A Guide To Various Types Of Mortgages

Well over half of all new mortgages have a fixed interest rate for a certain period, usually a few years. While this does shield you from the effects of interest rate rises, they are usually more expensive than variable rate deals, at least initially, and sometimes work out to be more expensive in the long term too.

The majority of fixed rate deals have a deal period of around two years, although there are fixed rate mortgages with longer deal terms than this. At the end of the deal period, the mortgage will revert to the lenders standard variable rate, which is usually a fair bit more expensive.

The crash in the housing market that followed the global economic downturn has forced the base rate to the lowest level in years. However, many lenders have compensated for this by raising the differential between the base rate and their standard variable rates from around two percent to around five or even six percent.

One thing you should always look out for when taking out a mortgage is the ease with which you can get out of the deal to switch to another lender. Switching mortgages can save you a lot of money, as it enables you to make use of a number of introductory offers over the course of your mortgage.

For as long as the base rate stays at its current low level, you might be better off sticking with your lenders standard variable rate. However, when it starts to rise again, as it inevitably will, you should try to switch your mortgage to one with a low rate introductory offer in order to save money.

Most people overestimate just how difficult it will be to switch their mortgage, and avoid doing it because they think it will be a hassle. In reality, it is really quite easy to switch your mortgage to another supplier, and you can save thousands of pounds by doing so.

A tracker mortgage is one in which the interest rate is tied to the base rate, rather than being loosely related to it, as is the case with variable rate mortgages. Usually, it is set a couple of percentage points above the base rate, and changes by the same amount when changes occur.

A tracker mortgage is usually the best value during times when the Bank of England base rate is low. However, during times when the base rate is high, fixed rate and standard variable rate mortgages tend to represent better value.

By: Delora Dings

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This guide to the various types of mortgages that are available was written by Delora Dings. For great deals on fixed rate, variable rate, and tracker mortgages go to the Alliance and Leicester website.