When you are looking to take out a mortgage you have to decide what sort of mortgage is going to best suit your needs. There are two types of mortgage that often prove popular amongst property purchasers, and these are variable rate and fixed rate mortgages. There are pros and cons to be considered for both of these mortgage types, and it is important to compare the pros and cons in order to determine which of these mortgage products are likely to prove suitable for your needs.

Most lenders will offer you the choice of either a fixed or variable rate mortgage based on your credit and eligibility, but before you make your decision you should make sure that you learn more about these different mortgage types so that you make the right decision. Your circumstances, needs, and budget will help you to determine which of these mortgage types is best suited to your needs, but it is also a good idea to look at movements with the base rate and whether the base rate is more likely to fall or rise, as this may also impact upon your decision.

Variable Rate Mortgages

A variable rate mortgage is a mortgage on which the interest rate can fluctuate in line with the base rate, so your interest rate could go up or down, which means that your monthly repayments could also go up and down. This can make it difficult to budget if you are on a tight budge wit little leeway for fluctuation, which can put some people off. It is also not great news when the base rate is on the up, which is something that has affected many homeowners over the past year and a half following the series of six interest rate rises applied between August 2006 and July 2007.

On the upside when the base rate is falling the interest rate on your variable rate mortgage should also fall, and therefore your monthly repayments should fall. Many experts are predicting that the base interest rate will fall a number of times this year, and with this in mind many consumers may decide to opt for a variable rate mortgage. Also, the initial rate that you get on a variable rate mortgage is generally lower than the rate at which your fixed rate mortgage will be set.

Fixed Rate Mortgages

A fixed rate mortgage is a loan that has a fixed rate of interest for a specified period of time. These loans have proven popular amongst many first time buyers who do not have experience in budgeting matters and who want to enjoy static repayments for a period of time in order to benefit from easier budgeting. The most common fixed rate periods are for two or three years, although you can get them for five, ten, or even twenty five years. With these mortgages your rate is fixed for a specified period of time, and during that term the interest rate will remain unchanged no matter what happens with the base rate, which means that your repayments will also remain the same throughout the fixed term.

On the upside a fixed rate mortgage means that if interest rates rise, as they have done a number of times over the past year and a half, your mortgage interest rate and repayment will not change during the fixed term. However, on the downside if interest rates fall, as many experts are predicting that they will over the coming year, you will be paying the higher rate, as your repayment and interest rate will not fall during the fixed rate term. You will also find that the initial rate at which your mortgage is fixed is higher than the standard variable rate at that time. At the end of the fixed rate period your mortgage rate will revert to the lender’s standard variable rate.

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