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With base lending rates tumbling to a historic low, now is an excellent time to be looking for a new mortgage product in the hope of saving some monthly expenditure, and hopefully a lot of cash over the long term. But if you are wanting 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 30% of mortgage holders, the fixed rate mortgage is the preferred type of product. With this type of mortgage you agree with your selected bank that for an agreed length of time you will pay a fixed rate of interest. The fixed term duration might be a few months up to a few years, it depends on the offers currently 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 chance there is to the bank that the rates could go back up 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 exactly what will be spending on your mortgage. There can be no interest rate rises to affect your budget. You are sure that unless you change your mortgage, exactly what you will be paying.

But this is not just an advantage, it is also a disadvantage. If interest rates do drop further, as has been taking place at the moment, then the amount that you are paying doesn’t benefit. And this is the chance of this type of mortgage. You know exactly what you will be paying, regardless of whether interest rates fall or raise.

Once your fixed rate mortgage is over, you may then have a tie in period with the bank for which you have to stay with the bank and pay the variable rate product. This is the return for the bank when they have given you a very 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 moves with the base rate, although not always moving with the base rate exactly.

Usually brokers will suggest that all customers on the bank’s variable rate mortgages should review their mortgage and think about switching to another product, or bank. It is usually not reduced in any way and is at risk of increasing with every rate change. Some time this type of product is looked at as the bank’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 high time that you decided to compare all mortgage rates and find yourself a new mortgage.

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Filed under: Finance

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