Fixed Rate Mortgages explained - Apply for a Fixed Rate Mortgage
If you’re looking for a mortgage repayment method which allows you to plan ahead then fixed rate mortgages could be suitable for you. Fixed rate mortgages are not based on variable interest rates and instead allow you to pay mortgage interest at the same rate every month. Your lender will discuss an agreed period of time in which you can pay a fixed rate and when this period finishes your interest will change to a standard variable rate.
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What is a fixed rate mortgage?
Fixed rate mortgages typically span from between 1 to 25 years. However, if you choose to leave the mortgage early before the fixed term is complete, most lenders will apply a redemption penalty charge. On some occasions borrowers may find a mortgage with a fixed rate policy which ends before the mortgage repayments are complete. In this situation the SVR may be unaffordable and borrowers could find that they get into debt or mortgage arrears. If this is the case, it may be wiser to leave the mortgage and pay the overhanging redemption penalty, rather than to be stuck with a mortgage which isn’t affordable. A reputable mortgage adviser should give you useful property advice on the lender’s SVR before you sign up, to save unwanted difficulties in the future.
A fixed rate mortgage means that you pay back the amount of capital you owe as well as a pre-agreed amount of interest each month, unlike a variable rate mortgage you can plan in advance how much interest you will be paying every month.
Why choose fixed rate mortgages?
Fixed rate mortgages can help borrowers plan ahead, budget and save money. If the BOE’s base rate is regularly higher than the fixed rate, borrowers will gain money.
How can I get a good fixed rate deal?
You can get the best fixed rate deal by:
- Improve your credit history
- If possible put down a larger deposit
- Compare different mortgage deals from different lenders
Property Advice Blog Top Tip!
Understand your lender’s standard variable rate of interest. When you find a mortgage deal which suits your personal circumstances, one of the most important factors to query is the lender’s SVR. With fixed rate mortgages you may be paying an affordable fixed rate for many years. However you might loose all the money you’ve saved if you end up paying a high SVR for several years after the fixed rate has ended.
What are the disadvantages of fixed rate mortgages?
If the BOE's base rate remains lower than your fixed rate for a long period of time then borrowers would loose out on money, unless the lender agrees to change the terms of the interest rate.
A lender might ask for a non-refundable fee with the mortgage application to reserve the mortgage. Some lenders ask for an arrangement fee when dealing with fixed rate mortgages.
Fixed rate mortgages can help many people to budget and save money, however beware of the pitfalls and get mortgage advice from a fully licensed broker before deciding on a fixed rate provider.
Should I change to a fixed rate mortgage?
Many people are considering switching to a fixed rate mortgage because interest rates are scheduled to rise in the UK. If you are on a variable rate mortgage this means that your repayments will increase. Repayments of homeowners on fixed rate mortgages will not be affected by the increase in interest rates. Considering moving to a fixed rate mortgage could give you stability in these uncertain times, although be aware that switching will incur fees and the rates offered in fixed rate mortgages are more expensive than variable rate mortgages.
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