Fixed Rate Mortgages
Fixed rate mortgage – the most popular type of mortgage today (along with tracker mortgages). The main attraction is that your mortgage rate is, well….fixed! You know exactly how much it will cost you each month.
Repayments will not change for the term of the fixed rate, which works to your advantage should the Bank of England raise its Base Rate. However, the yin to this attractive yang, is that you will be left paying a higher interest rate than necessary should interest rates fall.
Fixed rate mortgages are most popular among people who are stretching to afford their repayments (today, that is a large percentage of the mortgage-owning population) and those who simply want to be able to budget accurately each month. Even if a fixed rate deal works out more expensive than the best discounts or tracker deals, to many people it is worth it for the peace of mind.
Fixed rate mortgages – pros and cons:
PROS:
You pay a fixed rate for an agreed period, so you know exactly where you stand irrespective of market fluctuations.
Fixed rate mortgages were normally three- to five-year arrangements, but they are rapidly becoming more flexible as the Government seeks to encourage longer term fixed rate deals. However, the length of time on a fixed rate is often not the selling point, with people’s circumstances being the most significant aspect. At mortgagesplease, we compile a Fact File that gives a comprehensive picture of your circumstances and goals as part finding the best deal for your specific needs.
CONS:
Most fixed rate mortgages have a tie-in, known as an Early Repayment Charge that keeps you tied to your lender. If you switch to another deal before the fixed period has expired, you have to pay the ERC, which can total many thousands of pounds. Of course, as long as you are comfortable with the term of the fixed rate, this is not a problem.
- Be aware that Extended ERCs can lock you into the more expensive Standard Variable Rate for many years after the fixed rate has expired. As such, they are best avoided.
