Fixed rate mortgage deals keep the same interest rate, whatever happens with the Bank of England base rate. The interest rate stays the same throughout the length of the fixed rate offer, which could be two, five or ten years, for example. This means the monthly payments on the mortgage will be the same for that specified period of time, no matter what else happens with the economy.
Around 40 per cent of the mortgage deals currently being taken out are fixed rate mortgages – the figure is currently quite low, due to the current low base rate. Often people choose these deals because they have a young family or are first-time buyers, either of which may have more strict budgets to work with. If you are considering taking on a fixed rate mortgage deal, read on to find out the top 5 tips.
When is a fixed rate mortgage a good idea?
If you need to know precisely what your outgoings will be each month, or you just like to be able to budget in advance, a fixed rate mortgage could well be the right choice for you. This type of mortgage is less of a risk because, even if the base rate suddenly rises, your monthly payments will stay the same.
When is a fixed rate mortgage a bad idea?
As long as you have some breathing room in your monthly budget and could easily cope with higher monthly repayments should the base rate go up, you might be able to find a better deal with a tracker or variable rate mortgage. If you only have a small mortgage requirement, the risk of taking on these other types of mortgage deal is lower, so you should think carefully about whether they could save you money in the long run. It depends what is available and which type of mortgage suits your particular situation.
What else do I need to consider?
With a fixed rate mortgage you need to decide on the term of the mortgage – how long you want the deal to go on for. If you do find a particularly cheap deal then it might be worth signing up for five years or more. You also need to consider redemption penalties – these can be incurred if you exit your current mortgage deal before it ends and must be factored into the overall cost of the new deal if you are switching. There may also be mortgage fees to consider, charged by your new provider to set up the new mortgage. Ignore all these fees and costs at your peril, they may well cancel out the benefits of your new deal.
How can I choose the best deal?
You can compare mortgages on a mortgage comparison website, and calculate the monthly payments needed for different deals using a mortgage calculator. It’s a good idea to compare all different types of mortgages, across a variety of providers, before making your choice. The time and energy you put into researching the whole range of mortgage deals could save you many thousands of pounds over the years.