Fixed Rate Mortgages
Fixed rate mortgages are changing fast – and mostly for the better. Today you have more choice of rate, term and lender than ever before. Experts say you are also less likely to be trapped in an inflexible deal with no way to reduce your payments if interest rates go against you. It’s all good news for anyone stretching to borrow a lot of money in what looks like an increasingly uncertain economic climate. But there are some clouds on the horizon, not least in the form of ever higher application fees. So read on if you think a fixed rate mortgage might be for you. Here’s all the background you need – plus our independent analysis of the latest trends in the fixed rate mortgage market.
Fixed rate mortgages – How they work
The key main point of a fixed rate mortgage has always been payment stability. You know that the rate you will pay for your mortgage will stay the same for the pre-agreed term, normally two, five or ten years. So whatever else happens to interest rates and the economy your monthly mortgage payments will stay the same. This is what makes fixed rate mortgages a good choice for first time buyers or anyone that likes to budget from month to month. If your mortgage payments are at the upper limit of what you can afford each month then you should always at least consider taking out a fixed rate mortgage, Fixed rates are also good for people who aren’t sure exactly how much running a home can cost after purchase.
The Draw back of Fixed rates
Taking out a fixed rate mortgage will always feel good if interest rates go up during the term. Everyone else you know may be paying higher monthly payments. But yours won’t have changed by a penny. The downside of fixed rates are they can feel bad when interest rates lower. In the past, for example, many people on fixed rates felt stuck on higher interest rates. No-one can predict exactly what will to happen to interest rates in the future so you are taking something of a gamble with a fixed rate. But the simple rule about them stays the same. If you would have struggled to meet your mortgage commitments if rates had risen then the fixed rate was still worth having, even if you feel bad for a while when rates go down. situation even if interest rates go against you.
Which rate – and how long?
There are lots of fixed rate deals to choose from. Almost every bank, building society and other lender will offer at least one and some have more than a half a dozen fixes available. So which one is best for you? The first thing is to ask how long you want your payment security to last. If you are moving into a new home and just want time to find your feet then two year deals are often good choices. If you are about to face several years worth of bills – possibly for school fees – then longer term fixes can give you more confidence about affording them. The rates will vary according to the terms. The longer the term the higher the rate tends to be, though there are times when the opposite is true. Some lenders also offer special lower priced fixes for first-time buyers.
Fixed rates – flexibility. Previously the main problem with fixed rate mortgages was that you were pretty much stuck if you picked a bad deal and interest rates went against you. Banks wouldn’t let their fixed rate customers opt out of the deals and switch on to cheaper alternatives without paying early redemption penalties worth up to six months interest. Today those six months interest penalties tend to still apply, so you do need to be certain that a fix is right for you before signing up. But banks now let you overpay on the mortgage each month by up to 10 per cent of your loan without any penalties, some lenders will let you overpay buy 20%. So if you have any spare cash you are free to extra monthly payments on your mortgage.
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