Guide to Fixed Rate mortgages

As the name suggest this is a mortgage where the repayment levels are fixed for a certain number of years. This means that if the Bank of England Base rate goes up or down your mortgage will be unaffected.

Advantage of Fixed rate Mortgage

  1. If you want the certainty of a fixed monthly payment.
  2. If a significant rise in interest rates could mean that you are unable to meet mortgage payments and therefore could lose the house.
  3. If you want to be able to budget for the next 5 years.

Disadvantages of Fixed Rate Mortgages

  1. Obviously, if interest rates fall, you will not benefit and will be locked into making higher payments.
  2. Often lenders charge a higher premium for guaranteeing a fixed level of interest. Often fixed rate deals work out more expensive than variable rate mortgages.
  3. Usually fixed rate mortgages incur a charge if you wish to leave before the time period is up.

Conclusion

  1. A lot depends on what you think will happen to interest rates. If interest rates are likely to fall then it makes sense to stick to a variable mortgage. However it is very difficult to predict with any certainty what will happen to interest rates in 2, 3 or 5 years time.
  2. Sometimes fixed rate deals can look more attractive because the market expect interest rates to fall.
  3. Fixed Rate mortgages can also be linked to a discount rate. This is when the lender gives a discounted rate,  but this is usually just for first 6 or 12 months.

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