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What is a Fixed Rate Mortgage?
As the term implies, with a fixed rate mortgage the mortgage rate is fixed for a set period of time, so no matter what movements occur in the lender's standard variable mortgage rate, the borrower's arrangement is fixed and, therefore, so are the monthly fixed rate mortgage payments.
A fixed rate mortgage would suit someone who likes to know where they stand. A fixed rate mortgage, as suggested by the name, is a mortgage where equal repayments are made every month.
Fixed rate mortgages allow you to easily manage and plan your monthly expenditure - because the payment will be the same every month and you won't be affected by any rises in the base rate. If the interest rates rise above the fixed rate on your mortgage, you will see the real benefits of the fixed rate mortgage.
A fixed rate mortgage makes it easy to plan ahead, because as the name suggests, the interest rate on your mortgage stays fixed.
This means that as a fixed rate mortgage customer, even if the Bank of England Base Rate changes, the interest rate on your mortgage remains constant over a fixed period of time. This makes your budgeting easier, because you can plan ahead knowing exactly how much your monthly repayments will be.
The fixed rate period can be anything between six months and five years, but it's always best to refer to a financial services professional before deciding what period of fixed interest rate to choose.
The biggest advantage of a fixed rate is that irrespective of fluctuations in interest rates, your monthly repayments remain the same throughout the period of the fixed rate - usually six months to five years.
A fixed rate mortgage is suitable if your mortgage repayments take up a large proportion of your income as it protects you from rises in interest rates. However, you would not benefit from any reduction in the lenders standard variable rate.
Fixed rate mortgages generally incur a penalty if redeemed within the fixed rate period.
The advantage of a fixed rate mortgage is that you know exactly how much your mortgage will cost, and for how long. If interest rates on your mortgage rise, well the fixed rate will not. Conversely, however, when mortgage rates drop, your fixed rate mortgage will not drop with them.
The key benefit of a fixed rate mortgage is that you are able to accurately budget your repayments for a set period of time. In addition, fixed rate mortgages are an excellent option, if it becomes apparent that interest rates may be rising over the coming years, as you can protect your mortgage repayments against rises by choosing a fixed rate mortgage.
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About The Author
John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the http://www.directonlineloans.co.uk website.
MORE RESOURCES updated Mon. March / 08 / 2021
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