Choosing a mortgage can be confusing for homeowners, especially when having to navigate through the often complicated landscape of home finance, with various types of mortgages, deals, rates and lenders to consider.
Fixed rate mortgages are a very popular option for borrowers as they provide a consistent interest rate for a guaranteed period of time, meaning that your monthly payments stay the same for the duration of your plan. Not only this but unlike some other types of mortgages they are also pretty straight forward and easy to understand, varying only a small amount between lenders.
What Are Fixed Rate Mortgages and How Do They Work?
With a fixed rate mortgage your interest rate is guaranteed to remain the same for an agreed fixed period of time. This means that unlike variable rate mortgages, your monthly repayments will stay the same even if the interest rate rises which provides borrowers with peace of mind knowing exactly how much they have to pay each month.
When the agreed period comes to an end, if you do not switch or agree a new deal then the rate will automatically return to the lender’s standard variable rate (SVR). This will likely be higher than the rate on the fixed rate mortgage, but you will be free to switch to another deal without incurring penalties.
What Is The Difference Between Fixed and Variable Rate Mortgages?
With variable rate mortgages, the interest rate can fluctuate up and down depending on the movement of the lenders SVR or the Bank of England base rate. This means that just as the interest rates can fall and result in you paying less each month, they can also rise, meaning that monthly repayments are higher than expected.
Some buyers however prefer the consistency of a fixed rate mortgage, with interest rates set for the agreed term of the mortgage the monthly repayments that do not change and are not affected by changing SVR’s or the bank of England base rate.
How Long Should I Fix My Mortgage For?
The fixed period for mortgage rates are typically available for – two, three, five, seven or ten years, however one-year and fifteen-year fixes are possible, albeit rare.
In order to determine how long you choose to fix your mortgage, you will need to consider the different mortgage terms available and the varying benefits that come with them. With shorter terms you are able to switch to an alternative mortgage product sooner if you wish which provides more flexibility. But, with a longer term fixed rate you will benefit from the security of knowing exactly how much you will need to repay each month for the long term. At the end of the fixed rate period your payments will generally revert to the lender’s standard variable rate (SVR) unless you decide to move to another deal.
In general, the longer the fixed-rate period, the higher the interest rate will be. This is due to the fact that it is difficult for lenders to predict what might happen in the market over longer periods of time, meaning that you will essentially be paying a higher rate for the security of knowing that it definitely won’t increase, no matter what happens.
Helping You Choose The Right Mortgage
At Bower, we understand just how overwhelming making such a big financial decision can be. Our team of experienced, professional mortgage advisors are experts at what they do and can work with you to explore the various options. We will search through the mortgages available in the whole market and taking into account your individual needs and circumstances to find the best fixed rate mortgage deals for you.
If you have any questions at all about fixed rate home mortgages or would to find out more about our specialist mortgage advice services then get in touch and one of our friendly, knowledgeable advisors will be happy to help.
What is a fixed rate mortgage?
With a fixed rate mortgage, you are guaranteed that your monthly repayments will stay the same for the fixed period of time, until your plan ends. Unlike some other types of mortgages, the money you borrow is at a fixed rate of interest which means that for the agreed period of time you will pay the same amount each month, no matter how much the Bank of England base rate or the mortgage lender’s standard variable rate (SVR) fluctuates.
The initial period for fixed mortgages typically lasts anywhere from two to ten years which can provide a long length of repayment security for homeowners that can be appealing, especially first time buyers.
What are the pros and cons of fixed rate mortgages?
There are of course both advantages and disadvantages to having a fixed rate mortgage and whether one is the right fit or not will depend on your individual circumstances and needs.
⦁ Fixed rate mortgages are simple which makes budgeting easy as monthly repayments stay the same for the entirety of the fixed term period.
⦁ You don’t have to worry about increases in your monthly repayments as you are protected from rising interest rates.
⦁ A fixed mortgage means that you are not affected should your lender decide to increase their SVR.
⦁ Unlike variable rate mortgages, you are protected from interest rate rises that could cost you more than expected.
⦁ Although fixed rate mortgages are considered safer than variable rate mortgages, they also tend to be more expensive.
⦁ Fixed rate mortgages are a long term commitment and not as flexible as some other mortgages, with most providers charging penalties if you wish to pay your mortgage off early, make overpayments or exit the deal before the end of the fixed term.
⦁ If the interest rates do fall, you won’t benefit from a decrease in your monthly payments, unlike with a variable rate mortgage.
⦁ Fixed rate mortgages can come with upfront charges.
What should I do when my fixed rate mortgage ends?
When your fixed rate mortgage deal comes to an end then your mortgage will automatically revert to the lenders standard variable rate (SVR) which will likely be higher than your fixed rate, therefore costing you more.
When your fixed rate period is due, or the time is up, you typically have 2 options.
Option 1 = Do nothing and continue to pay the providers SVR which is a higher ‘default rate’ that they can choose to increase at any time.
Option 2 = Find yourself a new mortgage deal by evaluating your current circumstances and the offers available on the market. You may find that making a switch is a much better option financially and can help save you money.
If you want to ensure that your plan doesn’t revert to the SVR once it ends then its advisable to start looking for a new deal around 3-4 months before it expires in order to allow plenty of time to sort out all the paperwork and switch before having to pay the SVR.
Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Some buy to let mortgages are not regulated by the Financial Conduct Authority.
Bower Mortgages provides impartial whole of market advice with an award winning customer service experience. There will be a fee for mortgage advice. The precise amount will depend upon your circumstances but a typical fee will be £595 on completion of the mortgage.
Bower Mortgages is a trading style of Bower Retirement Limited and is Authorised and Regulated by the Financial Conduct Authority. Financial Services Register Number: 451607
Speak to one of our dedicated customer specialists or arrange your free, initial no-obligation quote by calling us on freephone 0800 411 8668.