What is a fixed rate mortgage?
This is one of the most common types you’ll hear about, ‘fixing’ your mortgage at a special rate for a certain time period (e.g. 2, 3, 5 or 10 years). You’ll know exactly how much you’ll be paying over this period and the rate won’t change. At the end of the fixed time, homeowners will usually move onto the lender’s standard variable rate mortgage (SVR), although you may be able to negotiate another fixed term with your mortgage lender. The longer the fixed term, the higher the rate. This is to compensate for such long-term security.
Pros and cons of fixed rate mortgages
This is a popular type of mortgage because monthly repayments won’t change even if factors such as interest rates on other types of mortgage increase. This is ideal if you’re on a budget and want to know exactly how much your repayments will be each month. However, if interest rates decrease with your lender, you’ll still have to pay the higher rate on your fixed mortgage, and this rate will often start higher than variable rates. If you want to move house during the fixed term, check if your mortgage is ‘portable’. You’ll face a repayment charge if you want to switch to another mortgage type earlier than the allotted term.
Timing is everything when remortgaging your home, so when your fixed term comes to an end, if you’re about to be switched to an expensive SVR, it may be worth getting a new deal.
When looking to apply for any type of mortgage, getting professional, impartial advice can help you get the best mortgage product for you. Find a trusted mortgage adviser in your local area here.