A fixed rate mortgage is an agreement that ensures that your mortgage repayments remain the same over the set period agreed upon with the lender (it is not influenced by varying interest rates). The fixed rates are for an initial period which can be anything from one to ten years. After this fixed term, you mortgage will enter into a variable rate (usually a tracker rate or your lenders Standard Variable Rate or SVR).
Generally, there is only one type of fixed rate mortgage available, although there are ‘flexible’ fixed rate mortgages which offer slight differentiations than the standard. These types usually discard the fee incurred on standard fixed rate loans when the user repays the loan back early (Early Repayment Fee).
Fixed rate mortgages have many advantages over other mortgage types; the first obvious advantage with fixed rate mortgages is that you know exactly what you’re getting and what you’re in for (during a certain period anyway). You will know exactly how much your repayments will be each month and this will not fluctuate during the initial set period. This is particularly attractive to those who like security and dislike uncertainty where their finances are concerned.
Having a fixed rate mortgage means that you know what you are paying each month, so you can plan your finances and budget accordingly. This is very helpful for first time buyers who are young and do not have much disposable income left over at the end of each month or do not have a great deal of money saved.
This also means that, as your payments are not affected by interest rates, you will not have to make high repayments that are judged by the form of interest rates, providing (much-needed) economic certainty and stability.
Fixed rate mortgages are most likely best suited for those who:
– Are concerned with the nation’s economic future and are worried that the Bank of England’s base rate will rise increasing the interest-based mortgage repayments on other mortgages (variable rate).
– Wish to be sensible with their finances and recognise that other non-fixed rate mortgages can be a dangerous game to play if you’re not properly equipped to deal with one. If you are worried that the interest rates will increase, in turn increasing your mortgage repayments and you do not want this uncertainty (on a regular basis) as you think you may struggle to afford the higher payments, a fixed rate mortgage is probably the most suitable type for you.
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The Advantages Of Fixed Rate Mortgages
