Save money by switching mortgages

People who have taken out a large mortgage in order to fund a property purchase can sometimes become very stretched financially when interest rates rise. However, you can protect yourself from rising interest rates by taking out a fixed rate mortgage.

In general, fixed rate mortgages tend to be a little pricier than discounted variable rate or tracker mortgages, although they are a lot easier to budget for. However, you should keep an eye on the fees, which can be a lot higher than you would expect on some of the more tempting fixed rate deals.

The vast majority of fixed rate deals last for about a couple of years, and then the mortgage will switch to the standard variable rate of the lender. You can get fixed rate deals that last a lot longer than this, but they tend to be expensive, and quite difficult to get out of.

You should check to see if you can switch your mortgage to a new property if your mortgage deal is difficult to get out of, as there is always a chance that you will move house during the fixed rate period. If you can, you will probably need to borrow any additional money that is required from the same lender.

Discounted variable rate mortgages tend to be the cheapest deals, at least initially. They are usually tied to the lenders standard variable rate, but with an additional discount for a certain period.

A mortgage with a variable rate may be inexpensive initially, but it does leave you at the mercy of interest rate fluctuations, as the rate will rise when the base rate does. As interest rates are currently at a low level, there are not that many discounted deals available, although this will change when interest rates rise.

Lenders make most of their money from borrowers who do not switch their mortgage once the initial special offer period has ended, but if you can be bothered switching your mortgage, you can save large amounts of money over the course of your mortgage.

Some deals lock you in for a certain period, so if you have a two year fixed rate deal, you might not be able to get out of the deal for a period such as three years after the deal has ended. You should always check this when you are applying for a mortgage, and figure this into your calculations.

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Alia Grubman wrote this article about mortgages. Visit the Alliance and Leicester website for great deals on fixed and variable rate mortgages.

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