When you're browsing different types of mortgages, you've doubtless come up against many different kinds. The answer to the question "what are the different types of mortgages available?" is a broad one, but generally speaking, the different types of mortgage loans available will boil down to fixed rate or variable interest rate.
What's The Difference?
So, when it comes to a fixed rate vs variable rate mortgage, what's the difference between the two? As you might have guessed, a fixed rate mortgage sets out the repayments at the outset of the loan. Those repayments will not change and nor will the interest rate, for a specified period of time - often five years, for example.
A variable interest rate mortgage is one where the interest rate, and your mortgage payments, in turn, can go up or down. They're normally split into two kinds - standard and tracker. Standard means the interest rate is determined by the lender, and tracker follows a complete separate interest rate, such as the Bank of England's.
What Are The Pros And Cons?
When choosing fixed vs variable interest rate mortgage plans, it's essential to know the pros and cons of each.
The pros of a fixed rate mortgage are that you always know in advance what your mortgage payments are going to be - which is useful if you're in the position of only just being able to afford your payments. You're also somewhat protected from fluctuating interest rates.
A variable interest rate mortgage's pros are that you can stand to have lower monthly repayments in situations where the interest rate drops. It's also possible that because you're taking a degree of risk of higher interest rates, a lender could offer more favourable initial rates as a reward.
The main con of a fixed rate mortgage is that you're never going to get the benefit of a lower monthly mortgage repayment. You may be protected from interest rates rising, but if interest rates happen to drop then your repayment amount is going to stay the same regardless.
One con to consider of a variable interest rate mortgage is that you're never going to be entirely sure what your next month's mortgage payment is going to be. If interest rates go down, it'll be lower - but if interest rates go up then it will be higher than you're used to.
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