There are so many different types of mortgage that it can be difficult to decide which one is right for you. I’m often asked, should you get a fixed-rate mortgage, or something else? So here’s everything you need to know about the popular fixed-rate mortgage.
What Is A Mortgage?
A mortgage is basically a loan that you take out to buy or remortgage a property. The lender charges you an ongoing fee for borrowing their money. This fee is commonly known as an interest rate. Lenders can change their default interest rate at any time. When the rate goes up you pay more each month. When it goes down, you pay less. This default interest rate is commonly called the standard variable rate.
Other Types Of Mortgage
There are multiple types of mortgage to choose between, including standard variable rate mortgages, tracker mortgages, and flexible mortgages.
One of the most popular and convenient options is a mortgage where the interest rate is guaranteed to stay the same for a set number of years. This is called a fixed-rate mortgage.
Simply, you either pick a mortgage with a rate that's fixed or a rate that can move. Normally, at the end of the deal, you pay the lender's standard variable rate.
What Are The Benefits Of A Fixed-Rate Mortgage?
With a fixed-rate mortgage, you benefit from the certainty of paying the same amount each month. This can really help with budgeting and gives you the security of knowing exactly how much you're going to pay. Also, if interest rates rise dramatically during the term of your mortgage agreement, you won’t be affected.
Why Would I Not Get A Fixed-Rate Mortgage?
The longer you choose to fix the interest rate, the higher the rate tends to be. This means that the security and other benefits of a fixed-rate mortgage aren’t free.
If interest rates fall during the mortgage period, you could end up paying more than you would have done with a variable-rate mortgage. Of course, this works the other way around, too!
More often than not, fixed rates are more expensive, but this is not always the case.
Finally, if you move home before your fixed-rate deal ends, you might end up paying large exit fees. Although some lenders allow you to move a fixed-rate mortgage to a new property, it's not guaranteed. So if there’s a good possibility of you wanting to move in the next two years then it’s probably not a good idea to fix the rate for five years. A shorter fixed rate or another type of deal might be better.
So Is Getting A Fixed-Rate Mortgage A Good Idea?
It’s hard to predict when interest rates will rise and fall. So if a steep increase in your monthly payments would have a big impact on you, then getting a fixed-rate mortgage when rates are low could be a really sensible move. Just bear in mind that moving house during the term of the deal can be troublesome.
If you need more personalized advice then I would always recommend speaking to an independent mortgage advisor. You can save thousands of pounds and avoid being tied into a mortgage that doesn’t fit your situation.
If you have a question, please do not hesitate to get in touch.