Fixed Rate Mortgage
Mortgage options
A fixed rate mortgage gives you a guaranteed fixed rate of interest on your mortgage for a given period of time.
This means that no matter what happens to the general interest rate the interest rate charged to your mortgage will not be affected and will neither increase nor reduce.
This can be particularly helpful if you have a large loan on a tight budget because a fixed rate mortgage will remain the same as will your payments and not be affected by any general interest rate alterations.
The only problem with fixed rate mortgages is if the interest rate falls you will not be able to take advantage of those reductions and you will still be paying the same amount you started with. It is important to seek advice on how long the fixed rate term should be as once you have entered into a contract you are effectively locked in for that period of time at that interest rate irrespective of what happens in the general economy.
The majority of the larger mortgage lenders will have numerous deals for a fixed rate interest and term ranging from 1 to 10 years and sometimes even longer. You agree at the outset what interest deal you will sign up for and the rate is fixed for that period.
Once the fixed rate period ends the mortgage usually reverts to the lenders standard variable rate at that time and some lenders will offer a second term of fixed rate usually for an arrangement fee but they will not be prepared to tell you what that term or rate of interest will be at the outset of the loan.
The good points are you know exactly what you owe during the fixed rate period; the down side is that you don’t know what rate the lender will apply to your loan after the fixed term period expires.
A fixed rate mortgage usually has an early repayment charge if you decide to switch to a different type of loan or if you choose to repay and settle your mortgage during the fixed term period so you should find out what these charges could be.
It is also very important to check whether the mortgage lender will permit you to transfer the deal and the fixed rate to a new property if you decide to move mid term. Mortgage lenders can sometimes limit the amount you can transfer and the amount you owe on the original mortgage so you may have to take pay more for taking out a bridging loan to plug the gap.
You should always take advice before you commit yourself to borrowing from a lender with a fixed rate term mortgage.
