Last updated: 23/07/2020 | Estimated Reading Time: 3 minutes
Fixed rate mortgages
When people are searching for a mortgage that offers them both security and peace of mind, choosing a fixed rate mortgage is probably their best bet. This is because these mortgage deals allow you to fix the amount of interest that you pay for a set period of time - normally between two to five years.
Your interest rate represents the amount that you are being charged to take out a loan. If you are paying more on interest, the loan that you are taking out is more expensive. The amount of interest that you pay can change over time and it is your lender's choice regarding when to change it.
However many banks allow their customers to fix their rate of interest for a certain amount of time in order to make their payments more manageable and easier to budget for. This is because you know exactly how much you will be paying each month and can therefore plan your finances accordingly.
So could you benefit from fixing your mortgage's interest rate? Find out by reading our guide.
In This Guide:
Understanding fixed rate mortgages
Fixed rate mortgages are a great way to make yourself feel more secure when it comes to your mortgage repayments. If interest rates go up you know that you don't have to worry about forking out more every month because your payments won't change.
Generally speaking fixed rate mortgages go on for somewhere between two and five years, although there are exceptions to this rule. The fact that you can be aware of exactly how much you are going to pay each month makes fixed rate plans a very popular choice with customers. It is however important to make sure that you find the right mortgage to suit you if you don't want to end up overpaying for your plan.
The best way to make sure that you don't pay too much on a fixed rate mortgage is to compare mortgage deals that are available. Taking out a mortgage is just like buying any other product - you want to shop around first. By doing this you will be able to make sure that you are aware of all the best mortgage deals on the market before you commit yourself to a plan.
Here on our website we offer a free and impartial mortgage comparison service that allows you to have a look at some of the best deals out there right now. Our aim is to help you make an informed decision when you decide which lender you would like to purchase your mortgage from.
The disadvantages of fixed rate mortgages
If you are on a fixed rate mortgage and you decide that you'd like to pay off your term early, there is a chance that you may have to pay an early redemption penalty. This means that you may end up paying more than you would have if you had followed a normal plan.
Many people try to take out fixed rate mortgages with the intention of staying with them until the fixed period ends and then remortgaging to another lender. However banks have started to discourage this by introducing clauses to loan agreements that compel you to stay for a certain "tie-in" period after the fixed term has ended.
Another disadvantage of fixed rate mortgage deals is the fact that if interest rates fall whilst you are still on your fixed rate, you will end up paying more than you could be for your mortgage. This means that it is a good idea to try and establish what interest rates are expected to do in the years that your rates will be fixed.