The typical variable rate mortgage is an ideal financial agreement for consumers while interest rates are low because their monthly payments are also low. As soon as the rates rise, the temptation to fix the rate is greater because those monthly payments will start to rise as well. The consumer faces great risk once the rates start going up and variable rates are no longer as attractive. People who want medium term stability are advised to take a look at 5 year fixed rate mortgages.
Plans are available for various time periods from as little as two years and as long as ten years. Locking in a mortgage for two or three years does not give the consumer much time to execute a financial plan before there is a need to renegotiate. Many people believe that ten years is too long because the financial climate is volatile and is likely to change. A five year deal offers a good balance that is suitable for most people.
The tricky part for most consumers is anticipating how the rates will change during the length of the mortgage. The Bank of England is responsible for setting the Base Rate, which is 0.5% and has been for two years. This is a record low, so it is only logical that those rates will rise eventually. Many financial experts are expecting rates to start increasing over the upcoming six months. Everyone agrees to that general time frame but there are various theories about how high they will get and how long they will stay there.
The Base Rate of Interest is set by the Bank of England, who review interest rates each month. The Monetary Policy Committee vote whether to leave the Base Rate at its current level, increase or decrease it. The main driver of this is the rate of inflation, which the Bank of England is supposed to keep at less than 2%. Currently it is well above 2% and interest rates are being held artificially low in order to prevent further economic meltdown during an on-going period of stagnation and recession in the UK.
Raising the interest rates would have been even more damaging to the economy so inflation rates have become secondary in the equation. Professionals in the financial industry feel the economy is now starting to show signs of recovery. With inflation rates approaching 4% it will be necessary to raise interest rates to a higher level. Rates will have to rise to between 4% and 6% to lower inflation.
Borrowers with variable rates will see their payments increase sooner rather than later. It is impossible to know for sure how high those rates will go or how long they will remain high before they start to come back down again. The 5 year fixed rate mortgages being offered are reasonable alternatives for people who want greater stability during uncertain economic times.
Plans are available for various time periods from as little as two years and as long as ten years. Locking in a mortgage for two or three years does not give the consumer much time to execute a financial plan before there is a need to renegotiate. Many people believe that ten years is too long because the financial climate is volatile and is likely to change. A five year deal offers a good balance that is suitable for most people.
The tricky part for most consumers is anticipating how the rates will change during the length of the mortgage. The Bank of England is responsible for setting the Base Rate, which is 0.5% and has been for two years. This is a record low, so it is only logical that those rates will rise eventually. Many financial experts are expecting rates to start increasing over the upcoming six months. Everyone agrees to that general time frame but there are various theories about how high they will get and how long they will stay there.
The Base Rate of Interest is set by the Bank of England, who review interest rates each month. The Monetary Policy Committee vote whether to leave the Base Rate at its current level, increase or decrease it. The main driver of this is the rate of inflation, which the Bank of England is supposed to keep at less than 2%. Currently it is well above 2% and interest rates are being held artificially low in order to prevent further economic meltdown during an on-going period of stagnation and recession in the UK.
Raising the interest rates would have been even more damaging to the economy so inflation rates have become secondary in the equation. Professionals in the financial industry feel the economy is now starting to show signs of recovery. With inflation rates approaching 4% it will be necessary to raise interest rates to a higher level. Rates will have to rise to between 4% and 6% to lower inflation.
Borrowers with variable rates will see their payments increase sooner rather than later. It is impossible to know for sure how high those rates will go or how long they will remain high before they start to come back down again. The 5 year fixed rate mortgages being offered are reasonable alternatives for people who want greater stability during uncertain economic times.
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