Is Now The Chance For You To Review Your Mortgage In Return For A Better Fixed Rate Mortgage?
Posted by Foreclosure Prevention in FinanceAs we are seeing interest rates crashing to a historic low, now is an excellent time to be hunting 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 thinking about starting to compare mortgage loan rates, what exactly are all of these different types of mortgages available on the market?
To start off with, for about 30% of home owners, the fixed rate mortgage is the favoured type of mortgage. With this type of mortgage you agree with your chosen bank that for an agreed amount of time you will pay a fixed interest rate. The fixed term duration might be a few months up to a few years, it depends on the offers you can select from on the market. How good the interest rate is will vary by on how long you are fixing it for. The briefer the time period, the more reduced the risk there is to the bank that the rates could increase in that time period, so normally the interest rate is usually more favourable. It is this fixed element of the mortgage that many home owners 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 know that unless you change your mortgage, exactly what you will be paying.
But this is not solely seen as an advantage, it is also a disadvantage. If interest rates do drop further, as has happened drastically at the moment, then the rate that you are paying doesn’t benefit. And this is the gamble of this type of mortgage. You know precisely what you will be repaying, regardless of whether interest rates fall or raise.
After your fixed rate mortgage has ended, you might then have a tie in period with the bank for which you have to stay with the bank on their variable rate product. This is the payback to 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 matching 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 moving to another mortgage, or bank. It is usually not reduced in any way and is at risk of increasing with every rate change. Quite often 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 mortgage loan rates and find yourself a brand new mortgage.
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