The Inside Edge
Following our recent article on the expected freeze on interest until 2014, we thought we would give you a brief guide to fixed rate mortgages. If you’re thinking of buying a new home now then a fixed rate mortgage could give you peace of mind about your monthly payments for up to five years. More companies are now releasing 5 year fixed rate products as well as tracker mortgages which track the Bank of England base rate.
When you take out a fixed rate mortgage your rate, as the name suggests, is fixed for a set period of time. You can usually choose to fix your mortgage for 2,3,5 and in some cases 10 years.
To find the best mortgage product for your situation we always advise speaking to an independent financial advisor or mortgage broker. They will give you a ‘whole of market’ view so that you get the best deal.
Advantages of a Fixed Rate Mortgage
Choosing a fixed rate mortgage will ensure that your monthly mortgage payments are the same over the fixed rate period.
Let’s say you took out a 5 year fixed mortgage in 2011 and interest rates increased in 2014, as they are predicted to do, your mortgage payment would not rise as a result and would stay the same until 2016 when your fixed rate runs out. It really is that simple and for many people, a fixed rate mortgage is a blessing.
Disadvantages of a Fixed Rate Mortgage
Naturally, there has to be a little bit of a catch and here it is. Fixed rate mortgages do incur set up fees and these can be quite high. That makes it even more important to shop around for the right mortgage at the right price. The set-up fee can usually be added to your total balance and monthly payments.
It’s usual with a fixed rate mortgage that you will be tied to that product until the fixed rate period expires. If you find a change in your circumstances causes you to review your current mortgage, or that you need to end the fixed rate term early, you will normally be forced to pay a redemption charge. This can sometimes equate to thousands of pounds depending on your mortgage amount and the terms of the product. Again, obtaining mortgage advice at an early stage could help you to avoid this type of situation.
If you’re looking for protection against a rise in interest rates then a fixed rate product is for you. However, it’s also important to understand that interest rates can go down and that if they do, you won’t be able to take advantage in the lower rate. Right now, interest rates are at a record low 0.5% and have been that way for 28 months now. This rate is now not expected to rise until 2014 so it’s a great time to look into fixed rate products or even tracker mortgages which track the Bank of England base rate.