Fixed rate mortgages
With a fixed rate mortgage, monthly repayments remain fixed and constant. This means that the borrower will know exactly how much they need to pay each month for the fixed term. A fixed rate mortgage may last for one to five years. Some lenders even offer fixed rates for ten years. When the fixed rate period ends, the rate will typically return to the lender’s standard variable rate. At this time, it is a good idea to review the mortgage plan, as the standard variable rate is unlikely to be competitive with alternative mortgage rates. Providing the existing plan does not have an extended early repayment penalty, remortgaging at this time should be financially worthwhile.
Most fixed rate plans will be subject to an early repayment penalty during the fixed rate period. This penalty is usually a percentage of the mortgage, which typically equates to thousands of pounds. Fixed rate mortgage plans that have an extended early repayment penalty may lock the borrower into paying over the odds for their mortgage in the long term. Other fees may apply and vary greatly between lenders. It is important to consider all fees, when comparing mortgage plans.
The main benefit of a fixed rate mortgage plan is that it offers certainty, unlike a variable rate which will rise and fall inline with the Bank of England base rate. A fixed rate mortgage is a sensible choice for first-time buyers, who would be unable to afford any increase in their mortgage payments. If the Bank of England increases the base rate, a fixed rate mortgage plan will remain unaffected. Conversely, if rates fall, the borrower will reap no benefit. For this reason, it is important to weigh up the benefits of a fixed rate plan against its disadvantages. Generally, if the rate offered is very low, a long-term fixed rate plan is likely to prove good value. When the base rate is high, providing the fixed rate is comparatively low, a short-term fixed rate plan may be a good idea.
To secure a low fixed rate mortgage plan, a shopper should compare deals offered by a number of different providers. Such as halifax fixed rate mortgages.