The Pros And Cons Of Fixed Rate Mortgages

With a fixed rate mortgage, your repayment amount is the same each month, for the duration of your mortgage deal period. The interest rate set at the start of the mortgage does not change for the fixed rate deal period, no matter what happens to the base rate. Currently, fixed rate deals are in demand despite the fact that the base rate is low, as it is likely to rise again soon. Here we will discuss some of the main benefits and drawbacks of opting for fixed rate.

Why Choose Fixed rate?

1) Interest rates will not affect you. Opting for a fixed rate mortgage cuts out the worry of always keeping an eye on base rates. For the lifetime of the mortgage deal, your payment each month will not alter, no matter what happens to the Bank of England base interest rate.

2) budget your household expenses effectively: A fixed rate mortgage enables you to budget effectively as you know what your mortgage payments will be for a predefined period of time known as the ‘fixed rate period’. The main reason fixed rate mortgages are so popular is because they are ‘fixed’. people will often accept paying slightly more, for the benefit of ‘knowing’ what they will need to pay offering them the facility to budget.

Why Wouldn’t You Choose a Fixed rate?

1) Early repayment charge tie ins and extra fees: As with most things in life, where there is a benefit there can sometimes be a down side to offset it. Fixed rate mortgages tend to have higher fees and charges associated with them. Fixed rate mortgages often have Early Repayment Charges associated during the fixed rate period. This is where you are charged a % if you pay off your mortgage in part or in full. There are often higher arrangement and booking fees associated with fixed rate mortgage products as well.

2) You will not reap the benefits of low interest rates. So if rates soar, you are comfortable knowing you have a fixed rate. However, if rates stay low, you are going to be paying at a rate higher than base rates. It is worth following the financial news whenever your mortgage is up for renewal, as it will help you to decide whether rates are likely to rise or fall.