A fixed rate mortgage or fixed mortgage is a home loan that comes with a fixed interest rate deal for a specified period of time.
A fixed mortgage is an ideal option for:
- first time home buyers
- any borrowers or consumers who need or value the stability of knowing exactly how much their monthly repayments will be in advance
What types of fixed rate mortgages are available?
These fixed mortgages are generally based on a variable rate which has a fixed rate deal attached to it for a set period of time. These deals generally last up to five years, but some deals can last as long as ten years. Once the deal expires, the mortgage will revert to the base type deal unless you can successfully re-negotiate another deal with your chosen lender.
How do fixed rate mortgages work?
- Standard fixed mortgage lenders will let you borrow between 3 to 5 times your own salary or between 2.5 to 3 times a joint salary, if you apply as a couple or with a partner.
- Some lenders of fixed rate mortgages offer more flexible borrowing options of up to 5 times your salary. It is now even possible to borrow up to 100% of your property value.
- You will normally require a deposit starting from 5% of the property’s value. 100% mortgages do not require a deposit.
- You can take out either repayment or interest-only mortgages with fixed rate mortgages.
What are the benefits of fixed rate mortgages?
- A fixed mortgage gives you peace of mind as you know exactly how much you need to pay each month, at least for the agreed period of the deal.
- A fixed mortgage makes it easier to manage your budget; this is especially useful for first time buyers or for families who may have to watch their monthly outgoings more closely.
Important considerations before applying for a fixed rate mortgage
A major concern with fixed rate mortgages is that you could end up paying more than you should if interest rates start to fall. As mentioned, you will enjoy the stability when interest rates rise, but you will not get the benefits when interest rates drop.
Watch out for fixed mortgages which come with tie-in clauses, penalties, exit fees, and redemption fees. Take everything into account before you take out a fixed rate mortgage to make sure you do not get a poor overall deal in the long term.
Often, borrowers may think they have secured a good deal. However, when they start to consider all the possible fees and clauses that could kick in, if they want to switch product, move to a different lender, or when the special fixed rate mortgage deal comes to an end, they may find themselves faced with a fixed mortgage that is not as attractive as it initially seemed.
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