What is a fixed rate mortgage?
We balance the pros and cons of being tied into a fixed rate mortgage.
With a fixed rate mortgage the monthly repayment amount is fixed for a specified period. The fixed rate remains constant irrespective of changes to the Bank of England's base rate or the lender's standard variable rate.
The fixed rate period typically lasts for two to five years, although it can be longer. At the end of the period the interest rate reverts to the lender's standard variable rate. An early redemption penalty will apply should you wish to cancel your mortgage before the end of the fixed period.
Furthermore, many low fixed rate mortgages 'tie you in' for longer periods. This is because an early redemption penalty is charged if you cancel your mortgage within a set number of years following the end of the fixed rate period.
It is easier to budget for your mortgage repayments as you will know exactly how much you will be paying over the period.
You can usually benefit from a lower interest rate in the first few years, freeing up money for furnishings, carpets or whatever else you want.
You are protected from any increases in the Bank of England's base rate.
Early redemption penalties will almost certainly apply, which may also extend beyond the end of the fixed rate period. This means you will be unable to change your mortgage during the 'early redemption penalty period' without paying a fee, which may be up to the value of six months mortgage repayments.
- During the fixed rate period you may miss out on a more competitive interest rate if the lender's standard variable rate drops to less than the fixed rate.
- You may be trapped in an uncompetitive rate once the interest rate reverts to the lender's standard variable rate.
Even the lowest fixed rate mortgages will normally require you to pay an application fee when arranging your mortgage.
NB This information is provided to give you an overview of the different types of mortgages available. It is not comprehensive and you should not base your mortgage decision on the information found here. We recommend you seek professional advice in order to determine the most suitable mortgage for you.
How to find the best fixed mortgages
If you think that a fixed rate mortgage is the best fit for your finances, finding the best mortgage deal is essential to keeping the cost of your mortgage down - here's what you need to consider.
Which mortgages are suitable?
Most of the top rate mortgages, on the market,
will only be available to you if you have a large deposit, usually around 40%.
If you have a smaller deposit, then your choice may be restricted by the maximum Loan to Value (LTV) ratio on offer from each mortgage. Work out the LTV you will need from your mortgage and exclude the deals that don't meet your need.
How long do you want to fix you rate?
Deciding the length of fixed rate mortgage deals that you want to apply for is the first big decision you need to make when looking for the best mortgages in the UK.
There is a big difference between a 2 or 5 year fixed rate mortgage; one will give you short term security and the freedom to look elsewhere in 24 months, while a 5 year mortgage will set your repayments for the long term but could also see you miss out on a cheaper deal should rates fall.
The lowest rate mortgages are usually available on shorter term fixes, because the lender isn't signing away its rights to raise those rates for such a long period.
Weigh up how long you need your mortgage repayments to be set, if knowing exactly what you'll pay over the coming years is important to you looking for the best 5 year fixed rate mortgage or even a 10 year fixed rate mortgage could be the right choice, if you don't want to miss out should rates fall but want short term security a shorter 2 year deal might be better.
What's the cost?
Once you know how long you want to fix your mortgage for the next step is to compare rates in search of the best fixed mortgage rates on the market.
Given the large amount of money you will have borrowed for your mortgage, the interest rate is usually the determining factor which decides which deal offers the lowest rate.
However, the interest rate is not the only cost associated with taking out a fixed rate mortgage, with most providers charging a number of fees.
While the interest rate applied to your borrowing is the main factor that affects the overall cost of most mortgages, if you are trying to choose between a couple of similar deals, checking the fees could help you decide which is the cheapest fixed rate mortgage deal overall.
If you follow all the pointers above it shouldn't be difficult for you to find cheap fixed rate mortgages that help you pay as little as possible for your home!
To compare fixed rate mortgages and deals, visit our fixed rate mortgage comparison table .Source: www.money.co.uk