There are two types of mortgage rates, fixed rate and variable rate. Whether you are looking to get a new mortgage or change the one that you have, it is important to understand the difference between the two types and think about which will be the best for you.
A fixed rate mortgage may sound like it is a fixed rate for the whole term, but it is not. The fixed rate just tends to last for a short period of time, perhaps between one and five years. There are several advantages of choosing a fixed rate. Firstly, you will know exactly what you will be paying each month. This means that if the Bank of England change their base rate of interest, then you will protected against these changes. If the rates go up then it is really great being protected as you will not end up paying any more. If the rates go down, then you will not benefit from this. This can be okay if you pick a good fixed rate anyway, but if rates plummet down while you are locked into the fixed rate deal then you could end up losing out massively.
Many people like the protection that a fixed rate gives them against any rises in interest rates but there are others that do not like the risk that they may lose out if rates fall. If rates are very low, then it is likely that they will rise and not fall and if they are very high they may be more likely to fall. However, predicting when they may change and by how much can be difficult and therefore it is not always that easy to work out when it is a good time to fix or not. It can be better to look at your personal circumstances and think about whether you could cope with a rise in mortgage payments and therefore how important it might be to protect yourself against this.
If you choose a fixed rate then you will be tied in with that lender for the term of the loan. This means that if you see better rates you will not be able to take advantage of them. You may be able to switch if you pay a penalty to the lender but this could be extremely high. It can be worth checking out how much that will be, before you take out the loan so that you can decide whether it is the right thing for you.
Once the fixed rate period on a mortgage is over then you will automatically be switched onto the standard variable rate. It is worth being aware of when this will happen as you may want to change to a different mortgage at this time so that you can find a cheaper rate.
A variable rate will change when the bank decides to change it. This would normally be in line with the base rate, but the lender can choose when to change. This means that when interest rates go up, it is likely to increase the rate quickly, but when they fall it may take time for them to reduce the rates or they may not reduce them at all. A way around this is to get a tracker rate, which will track the base rate and change as soon as it changes. These can be good, but the lender will add a percentage onto the base rate and if this is high it could make them uncompetitive compared to other mortgages.
So making a choice can be difficult. It is worth comparing all rates and seeing which look the best. Think about how long the fixed rates are fixed for and what you think might happen to the base rate during this time. Also decide whether it might be better for you to know exactly how much you are paying each month and if you can risk your mortgage payments going up and how you would afford to pay them if that happened. It is also worth knowing that you can switch. So if you are fixed in for a certain period of time, you can swap afterwards or if you have a variable mortgage you can swap at any time so if you think that you are not getting a competitive deal, then you can swap to a different lender.