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
- If you want the certainty of a fixed monthly payment.
- If a significant rise in interest rates could mean that you are unable to meet mortgage payments and therefore could lose the house.
- If you want to be able to budget for the next 5 years.
Disadvantages of Fixed Rate Mortgages
- Obviously, if interest rates fall, you will not benefit and will be locked into making higher payments.
- 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.
- Usually fixed rate mortgages incur a charge if you wish to leave before the time period is up.
Conclusion
- 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.
- Sometimes fixed rate deals can look more attractive because the market expect interest rates to fall.
- 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.
