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.