This is a very common type of mortgage in the UK. It basically means that for a specific period your monthly mortgage payment will not go up or go down whilst the mortgage period is fixed. Effectively you do not have to worry now that the Bank of England has decided to start increasing the UK Base Rate (it moved from (0.25 to 0.5% – 02/11/2017).
Fixed rate mortgages can be fixed for different terms, they could be fixed for 2 years, 3 years, 5 years, 7 years and then 10 Years. The longer you fix if for the higher the interest rate the bank will charge for that rate. This is another reason why you need to speak to a broker about fixing your mortgage costs.
Once you have decided that you want to fix your mortgage costs for a specific period you will have a penalty whilst the rate is fixed. This basically means that if you decided to fix your mortgage costs for 5 years and you decided to re-mortgage there will be a penalty to pay. This is called an Early Repayment Charge ERC and will be a % of the balance of the mortgage.
The Advantages of a Fixed Rate Mortgage:
- With a fixed-rate mortgage, your interest rate stays the same for a set period, meaning you pay the same amount every month for the duration of the deal. This is good if you want to know for sure how much your payments will be each month.
- Being on a fixed interest rate means that you’ll be unaffected by rate rises in the wider market (i.e. if the base rate is increased) for the duration of your fixed period.
- We’ve recently seen some of the cheapest-ever fixed-rate mortgages hitting the market (check out our mortgage calculator).
- While interest rates on 10-year deals can be higher than those for shorter-term fixes, you may end up paying less in the long run. Talk to a mortgage broker if you’re unsure.
The Disadvantages of a Fixed Rate Mortgage:
- If interest rates fall elsewhere in the market you could end up paying more than you would have done with a different type of mortgage.
- If you’re planning on moving – house soon, you may wish to avoid tying yourself into a long-term fixed-rate mortgage unless it’s portable, or you could face steep exit fees. Portability is an option, but is at the lender’s discretion, and whether they will agree depends on their criteria at the time you apply.
- Given the current political uncertainty regarding leaving the EU and how long this will take, it’s worth considering how long you want to fix your mortgage for. Officially, the government will have to give the EU two years’ notice – but they haven’t done so yet. If and when we do exit, there may be more uncertainty in the market, which in turn might make it harder to get a mortgage.
- The best fixed-rate deals are available to those who have a large deposit or amount of equity in their homes, and maximum loan-to-value ratios rule out a lot of customers