With a fixed rate mortgage, your repayment amount is the same each month, for the duration of your mortgage deal period. The interest rate set at the start of the mortgage does not change for the fixed rate deal period, no matter what happens to the base rate. Currently, fixed rate deals are in demand despite the fact that the base rate is low, as it is likely to rise again soon. Here we will discuss some of the main benefits and drawbacks of opting for fixed rate.
Why Choose Fixed Rate?
1) You can forget about interest rate increases. With a fixed rate mortgage, your monthly payment will be the same, no matter what happens to interest rates. There will be no need to be concerned about base rate changes during the deal period, and you will always know for the period your mortgage payments are fixed what amount to allocate for your mortgage.
2) Planning your finances will be easier. During the life of your fixed rate mortgage you will know exactly what it will cost you each month. This makes planning other financial commitments much easier, such as home improvements or holidays. Although they usually cost a bit more, fixed rate mortgages do offer stability, and make budgeting much more straightforward. Fluctuating interest rates can create a lot of worry for those on other types of mortgages.
Why Wouldn't You Choose a Fixed Rate?
1) Additional fees, and penalties for repaying early. The security of having fixed payments comes at a price. Lenders know that you are willing to pay for this safety, and also that they may be out of pocket if rates soar. Arrangement fees and booking fees therefore tend to be high, and there are usually fees for paying off your mortgage early. In this case, you would have to pay an extra percentage of your mortgage.
2) You gain no benefit if interest rates go down: If interest rates go up whilst your mortgage rate is fixed your are laughing, as your rate and monthly mortgage payment remain unaffected. However, if interest rates go down you will not gain any benefit in the form of reduced mortgage payments. It is therefore best to take out a fixed rate mortgage at a time when interest rates are going up, but this of course is difficult to predict
Why Choose Fixed Rate?
1) You can forget about interest rate increases. With a fixed rate mortgage, your monthly payment will be the same, no matter what happens to interest rates. There will be no need to be concerned about base rate changes during the deal period, and you will always know for the period your mortgage payments are fixed what amount to allocate for your mortgage.
2) Planning your finances will be easier. During the life of your fixed rate mortgage you will know exactly what it will cost you each month. This makes planning other financial commitments much easier, such as home improvements or holidays. Although they usually cost a bit more, fixed rate mortgages do offer stability, and make budgeting much more straightforward. Fluctuating interest rates can create a lot of worry for those on other types of mortgages.
Why Wouldn't You Choose a Fixed Rate?
1) Additional fees, and penalties for repaying early. The security of having fixed payments comes at a price. Lenders know that you are willing to pay for this safety, and also that they may be out of pocket if rates soar. Arrangement fees and booking fees therefore tend to be high, and there are usually fees for paying off your mortgage early. In this case, you would have to pay an extra percentage of your mortgage.
2) You gain no benefit if interest rates go down: If interest rates go up whilst your mortgage rate is fixed your are laughing, as your rate and monthly mortgage payment remain unaffected. However, if interest rates go down you will not gain any benefit in the form of reduced mortgage payments. It is therefore best to take out a fixed rate mortgage at a time when interest rates are going up, but this of course is difficult to predict
About the Author:
If you would like professional advice to help you decide whether a fixed rate mortgage is the right choice for you, then Fixed Rate Mortgages 4 U can help.
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