Mortgages are one of the most significant financial commitments that most people will make in their lifetime. Deciding which type of mortgage to go for can be overwhelming, especially if you’re not familiar with the various options available. One of the most significant decisions you’ll need to make is whether to choose a fixed or variable rate mortgage. In this article, we’ll explore the differences between the two and help you understand which option may be best for your individual needs. Here at Aventine property we offer a Deal Sourcing Service to help with this.
Fixed Rate Mortgages
A fixed rate mortgage is a type of mortgage where the interest rate stays the same for a set period of time, usually between 2-10 years. This means that regardless of any changes in the economy or Bank of England base rates, your mortgage payments will remain the same throughout the fixed rate period.
Fixed rate mortgages offer certainty and peace of mind to homeowners. Knowing that your mortgage payments will remain the same for a set period can help you plan your finances more effectively. You’ll be able to budget accurately and ensure that you can afford your monthly payments.
Additionally, a fixed rate mortgage can offer protection against rising interest rates. If the Bank of England raises interest rates during your fixed rate period, your mortgage payments won’t change, meaning you won’t be affected financially. This can be particularly beneficial if you have a tight budget or are on a fixed income.
However, there are some downsides to fixed rate mortgages. For one, they typically come with higher interest rates than variable rate mortgages, meaning you may end up paying more over the long term. Additionally, if you decide to end your fixed rate mortgage early, you may have to pay an early repayment charge, which can be significant. Further details can be found here on Money Helper..
Variable Rate Mortgages
A variable rate mortgage is a type of mortgage where the interest rate can fluctuate. This means that your mortgage payments could go up or down, depending on changes in the economy or Bank of England base rates. There are two main types of variable rate mortgages: tracker mortgages and standard variable rate mortgages.
Tracker Mortgages
A tracker mortgage is a type of variable rate mortgage that tracks the Bank of England base rate. This means that if the base rate goes up, your mortgage payments will go up, and if it goes down, your payments will decrease. Tracker mortgages typically have a set percentage above the base rate that you’ll pay, for example, the base rate plus 1%.
Tracker mortgages can be beneficial if the Bank of England base rate is low, as your mortgage payments will be lower too. Additionally, if the base rate decreases, you’ll pay less interest on your mortgage, meaning you could save money. However, if the base rate increases, your mortgage payments will increase, which could put a strain on your finances.
Standard Variable Rate Mortgages
A standard variable rate (SVR) mortgage is a type of mortgage where the interest rate is set by your lender. The interest rate can change at any time, regardless of changes to the economy or Bank of England base rates. This means that your mortgage payments could go up or down at any time, making it difficult to budget accurately.
SVR mortgages can be beneficial if interest rates are low, as your mortgage payments will be lower too. However, if interest rates increase, your mortgage payments will also increase, potentially putting a strain on your finances. Additionally, SVR mortgages typically have higher interest rates than fixed rate mortgages, meaning you may end up paying more over the long term. Read more here about fixed and Variable rate mortgages.
Which is Best for You?
Deciding which type of mortgage is best for you will depend on your individual circumstances. Fixed rate mortgages offer certainty and peace of mind, but they can be more expensive than variable rate mortgages. Variable rate mortgages can be cheaper, but they come with more risk, as your mortgage payments could go up at any time.