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.
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.
If you decide to choose the best fixed rate mortgage you could find, the following is worth remembering:
• The lenders interest is based on the Bank of England base rate
• 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.