What Is A Fixed Rate Mortgage?

A fixed rate mortgage, as the name suggests, is a mortgage where the interest rate is fixed at a predetermined percentage for a specific period of time. Even if the Bank of England base rate or the lenders rate changes, your fixed rate will stay the same, possibly making budgeting with regular monthly payments easier.

What Benefits Do Fixed Rate Mortgages Offer?

Fixed rate mortgages can be ideal as a first time buyer mortgage. Also if you have a tight budget and want to know exactly what you will be paying out each month then a cheap fixed rate mortgage could be ideal.

With variable rate mortgages, as the Bank of England base rate changes and your lender changes their interest rate, so your monthly mortgage payment changes. With a fixed rate mortgage this doesn't happen because you fix your interest rate to a set percentage for a set period of time. Whatever then happens to the mortgage interest rates will not effect you because your monthly mortgage payment will remain constant until the fixed rate period is over.

With fixed rate mortgages, you can usually fix the mortgage interest rate for up to five years, however fixing the mortgage rate for two or three years appear to be the most common time period.

Are There Any Pitfalls To Fixed Rate Mortgages?

Remember, fixed rate mortgages are set to a predetermined interest rate, whilst this is beneficial if the mortgage interest rate is on the increase, it can be detrimental if it is falling, because theoretically you could end up paying more interest than the lenders standard variable rate (SVR).

Often with fixed rate mortgages, there are tie in periods which can be costly to buy yourself. The tie in periods can be extended, so you may find yourself tied to the lender for a period of time after your fixed rate mortgage is complete, for this reason it may be best to avoid fixed rate mortgage deals where there is an extended tie in period.

If you are in any doubt about your mortgage it is always best to consult with an independent financial advisor before committing to the mortgage.