Fixed Rate Mortgages

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What is a Fixed Rate Mortgage?

A fixed rate mortgage has an interest rate that does not change, so you will know exactly how much your monthly repayments will be for a predefined amount of time agreed with the lender. Other mortgage rates may fluctuate over time but with fixed mortgage rates, you can rest assured that your monthly repayments will stay stable.

fixed rate mortgage

How long can you Fix your Mortgage Rate for?

Typically, these types of mortgages are either a 2 year fixed rate, a 3 year fixed rate or a 5 year fixed rate. However, 10 year fixed rate mortgages do also occasionally show up. The interest rates charged are typically higher for longer fixed rate periods and vice versa. So a longer fixed mortgage rate time frame is not always an obvious pick.

What happens at the end of the Fixed Rate Mortgage Period?

At the end of the fixed product term, you will usually be transferred automatically onto the lenders standard variable rate. This will most probably be a different rate to the fixed rate you were paying and it will fluctuate so you will lose the stability that you would be used to. See our guide to variable rates for further information on standard variable rates. At this stage most people will seek to remortgage in order to find a new mortgage deal.

It should be noted that there is often a penalty charge if you pay off your fixed rate mortgage before the end of the set period.

Advantages of a fixed rate mortgage

  • ‘Set it and forget it’, you will know exactly what your monthly repayments will be without having to be concerned about fluctuations in interest rates.
  • Fixed rate mortgages are particularly appealing to first time buyers or those on a tight budget who can’t afford to risk there being an increase in their monthly mortgage repayments.
  • Fixed rates are an easy to understand concept leaving less room for miscalculation.

Disadvantages of a fixed rate mortgage

  • Mortgage rates are usually higher for fixed rate mortgages than they are for variable rate mortgages as the lender is effectively charging you a premium for the security that the product offers you.
  • If interest rates drops you won’t see any benefit from this.
  • Locking yourself into a fixed mortgage for a certain amount of time might restrict some life changes and plans that happen along the way such as needing to move house. Getting out of a fixed deal before the end of the agreed term can be costly.

Final considerations

Fixed rate mortgages are best for those who simply want peace of mind or those that feel interest rates are more likely to rise than they are to fall. They are also a prefered option for those who are on a tight budget and cannot afford for their monthly mortgage payments to increase.

Taking out a medium to long term arrangement such as a 5 or 10 year fixed mortgage is growing in popularity but is important to consider any potential early repayment charges should you unexpectedly need to repay the loan early, for instance, by selling the property.

If you are still unsure whether a fixed rate mortgage is right for you, make sure you have read our guide to the different types of mortgages to consider all of the options or contact one of our advisers.

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