Types of mortgages

There are more than one type of mortgage you can have, the main ones are a fixed rate mortgage or a variable mortgage.

Fixed rate mortgages- The interest rate that you pay will remain the same throughout the length of the deal, no matter what happens with interest rates. With a fixed rate mortgage, youbll have a peace of mind that your monthly payments that you make will stay the same, helping you to budget for other bills and outgoings. Although you will be paying the same interest rate, a fixed rate deal is normally slightly higher than what you would pay with a variable rate mortgage. With a fixed rate, if the interest rates were to fall, you wouldnbt be benefiting from this.

Variable rate mortgages- With a variable rate mortgage, the interest rate you will pay can change at any time. Always try to ensure that you have some savings kept aside, in case of any rises in rates. The main reason to consider a variable rate mortgage, is that you could end up with a lower monthly payment than if you were to have a fixed rate deal. Sometimes lenders will offer you a lower initial rate, as your taking a risk that the interest rates could potentially rise in the future.

Although your monthly payment may be lower, making it more affordable for you and your family, just bear in mind that the payment may drastically increase some months, getting so high that you must default on your payments. The best way to manage these risks, is to have a loan with restrictions and caps. Caps are limits on how much a variable rate mortgage can actually vary.