There are many mortgage options out there and whether you are looking for a first time mortgage or changing the one that you have, it can all be rather confusing. One choice you will need to make is between a fixed rate and a variable rate mortgage. Many mortgage companies will have a fixed rate option and it can look really great, but there are some advantages to a variable rate mortgage that are worth considering alongside these.
A variable rate can be changed at any time. Many people assume it changes just when the base rate changes, however, this will depend on the particular lending. They may change their rates in between Bank of England rate changes and it could be up or down. This uncertainty is something which can put some people off, but if you are trapped into a fixed rate and the base rate falls, your rate will not go down. It could mean that you could end up paying more than those on a variable rate.
It is worth noting that mortgage companies will always want to make a profit. Therefore when they are setting their fixed rates, they will make a prediction about what the base rate might be and set it at a level they would think would be an average rate for that term. Then they will be able to make as much profit from their fixed rate as their variable rate. If they get it wrong, you could end up paying more or less but it is probably harder for customers to predict than the lenders. Therefore, if you think that going for a fixed rate will be cheaper, you may be mistaken. However, base rates changes are not always that predictable and the longer the term you are trying to predict; the more difficult it is. This means that it can be rather a gamble, so you may have to make your decision based on more than just that.
If you have a variable rate you may worry that the rates will go up when the base rates go up but they will not fall when the base rate falls, so that the lender makes more profit. Although this has happened, the lenders do want to remain competitive as they know that their customers could switch if they feel that what they are paying is too high or unfair. It is worth keeping an eye on this though as you could switch if you are on a variable rate as you do not get tied in like you will if you are on a fixed rate. This flexibility could certainly be to your advantage if you are happy to regularly switch lenders and think that it will be more profitable if you do so.
Another way to take advantage of rate changes as they drop is to take out a tracker mortgage. This tracks the base rate and so if the base rate drops then your rate will immediately drop. Of course, if it goes up your rate will go up, but most lenders will put their rates up almost as soon as base rate goes up anyway. The only thing to be wary of with these is that the lender will add on percentage. So you may pay 1% plus the base rate, so you need to check and see whether that extra amount is fair and competitive and whether you think it is worth it and will help you to pay less.
So it is important to compare all types of mortgages to consider which will be the best type for you. Consider the pros and cons of each and think about your priorities. Most people put cost as their top priority but there may be other factors such as flexibility, reputation of lender and customer service that may be important to you as well. It can be worth writing a list of criteria and then looking at those factors for each mortgage that you are considering. If you have a financial advisor, then give them the list so that they can find the best mortgage to suit your needs. This could be the best way to get help with making the decision as it can be a really difficult one to make.