Best Fixed Rate Mortgages

A fixed rate mortgage is one where the interest rate is stabilised at a certain percentage for a specified period of time or for the life of the loan.  It may be useful when it comes to budgeting as there will be one fixed figure to deal with at all times. 

Fixed rate mortgages may be granted on an interest only or repayment basis.  Applicants who are employed, self employed or self certifying their income, may also qualify for some of the best fixed rate mortgages.

The fixed rate that lenders use is guided by the Bank of England’s (BOE) base rate.  Lenders usually use the BOE base rate and add a percentage on top to arrive at their fixed rate.

Securing the best fixed rate mortgage may be done by comparing what different lenders have to offer and choosing the mortgage that is best suited to you.

Who Could Benefit
Choosing the best fixed rate mortgage may be of benefit in the following circumstances:

• Customers who want to stick to a strict budget
• Customers who think the Bank of England base rate will rise higher than the rate of their lender

Benefits Could Include
Some of the benefits of the best fixed rate mortgages are:

• You’ll know how much you have to pay for your mortgage payment for as long as the interest rate remains fixed.
• You will have peace of mind knowing that your payments will not increase.
• A fixed rate mortgage could allow you to budget better as you are likely to know your mortgage payment each month.
• If there are any rises in the Bank of England base rate above your mortgage fixed rate, it may not affect you.
• A homebuyer may find great security in knowing that as long as their income doesn’t fall, they’ll be able to repay the mortgage.

Drawbacks
Here are some of the drawbacks of choosing a fixed rate mortgage:

• If you do have a fixed rate mortgage you will not benefit if there is a drop in the interest rate. This will only apply if the Bank of England interest rate falls below the fixed interest rate you are paying.
• There is usually an arrangement or booking fee
• Some lenders have early repayment charges that apply if you want to repay your mortgage within the fixed rate period
• After the rate ends, unless you switch lenders, you may have to pay the lenders standard variable fee.

Summary
If you decide to choose the best fixed rate mortgage you could find, the following is worth remembering:

• Fixed rates can be done for a specific period or for the life of the mortgage
• Once you have a fixed rate, your mortgage payments should remain the same
• When the fixed rate is finished you may be forced to pay the lenders standard variable rate
• Fixed rate mortgages may be useful for planning and budgeting purposes.

Fixed rate mortgages more popular

The Council of Mortgage Lenders (CML) has just advised that mortgage borrowers are increasingly favouring a fixed rate mortgage. Borrowers taking out fixed rate mortgages increased to 59% in April 2008 from 54% in March 2008.

Having a fixed rate mortgage means that you know exactly what your mortgage payments will be for a set period of time. This makes budgeting much easier. It is very common for a first time buyer to choose a fixed rate mortgage as they find it useful whilst getting used to paying a mortgage each and every month.

The upside to a fixed rate is your mortgage payments stay the same whilst others may increase if interest rates go up. Conversely, if interest rates fall then you will still pay your fixed amount each month.

Fixed interest rates can be selected over a range of time periods such as; one year, two years, five years, ten and 25 years. Nearly all fixed rate come with early repayment charges (ERC) which means that if you pay off all or part of the loan during the ERC period then you will need to pay a penalty. As ERCs are normally linked to the mortgage amount this could add up to a substantial sum of money.

It is difficult to know what type of interest rate is right for you; fixed, tracker, discount?  We would always recommend seeking the advice of a mortgage broker who can then search the mortgage market to see what interest rates are right for your circumstances.