Fixed Rate Mortgages Explained
When I came to buy my first home, I found some of the terminology surrounding mortgages to be quite confusing. Fortunately, the internet is a pretty good resource for finding out more.
Deciding on a mortgage is a very personal issue and there are numerous mortgages currently available within the UK.
A fixed rate mortgage is a specific type of mortgage where you pay a fixed mortgage repayment for an agreed period of time. Typically, this means that you might have the same monthly repayments for anything between 12 and 60 months (depending on the type of fixed rate mortgage that you go for).
Fixed rate mortgages tend to appeal to borrowers who want to take out a mortgage and know exactly how much their mortgage repayments will be each month. During the fixed term of the mortgage, borrowers are effectively protected from changes in interest rates.
It seems to have become increasingly popular for first-time buyers to choose this type of rate, partly because many people find it easier to budget when they know exactly what they will be spending on mortgage repayments each month.
Why doesn't everyone choose a fixed rate mortgage?
Fixed rate mortgages may not be the best option for your given circumstance. If in doubt, you should seek advice from an independent financial specialist. Fixed rate mortgages can lead to higher monthly repayments than would be the case with a variable rate mortgage (though this is by no means always the case - it will depend on what the rate is fixed at).
What happens at the end of the fixed rate?
At the end of the fixed rate, you will usually find that you will switch to your lender's variable rate. You need to be aware that the variable rate is not the same as the Bank of England interest rate that you sometimes hear being talked about in the news.
Some borrowers, rather than move on to the variable rate at the end of the fixed term, look to move to another mortgage product.
Can I switch mortgage product at any time?
The answer to this question will largely be dependant on the type of mortgage that you have and who your lender is. Lenders may charge penalties if you decide to switch mortgages, so you need to be aware of the small print when it comes to your mortgage. A boring, but necessary evil.
1. Fixed Rate Mortgages Explained
2. Variable Rate Mortgages Explained
3. Capped Rate Mortgages Explained
4. Self Cert Mortgages
5. How do Mortgage Terms work?