Fixed Rate Mortgages Guide
What is a fixed rate mortgage?
A fixed rate mortgage is when the monthly repayment amount is fixed for a set period of time. The amount you pay remains unchanged despite any ups or downs there may be in the Bank of England’s base rate or your lenders standard variable rate.
The most popular fixed rate mortgages are usually offered between two and five years. With some lenders there are longer terms available (even fixed up to 25 years), however the longer the fixed rate period offered then the higher the initial charge rate of the fixed rate tends to be. With a fixed rate mortgage borrowers are simply paying a premium to have the piece of mind in knowing their mortgage payments will not change for a set period of time and this allows them to budget carefully.
After the fixed rate period comes to an end the interest rate payable reverts to the lenders standard variable rate. At this stage you can remortgage and find another fixed rate mortgage product if you wish.
What are the disadvantages of a fixed rate mortgage?
As we have experienced over the last 3 years, when base rate is falling or remains relatively low for a period of time, the lenders variable rate can be lower than the fixed rate meaning you are paying more than you would do if you were not in a fixed rate scheme.
Lenders can impose expensive penalties if you wish to leave a fixed rate scheme before the end of the term.
What are the advantages of a fixed rate mortgage?
A fixed rate mortgage can help you budget as you know exactly how much you are paying each month. This can be especially important for first time buyers who are new to the costs of home ownership.
You don’t have to worry about increases in interest rates affecting your monthly payments. Even if the lenders variable rate becomes greater than the fixed rate you will not have to pay any more.
When is the right time to get a fixed rate mortgage?
Although fixed rates are often recommended to first time buyers or those on a limited budget, in reality there is no right time or wrong time to take on a fixed rate mortgage. It is not possible to accurately predict the future interest rates, especially not over periods of five years or more.
Finding the right mortgage product is based on a number of factors and it is often beneficial to speak to a mortgage advisor who can discuss the options available to you.
