Fixed Rate Mortgages - The Pros and Cons of Fixed Rate Mortgages

If you choose a fixed rate mortgage your mortgage payments will remain constant for a set period of time and will not fluctuate, even if the Bank of England Base Rate changes. So, you will pay the same interest rate every month which makes budgeting a bit easier. This can be particularly helpful if things are tight financially.

The time frame for a fixed rate mortgage term can, in theory, be any length but the ones you will see most frequently are two, three or five-year terms. They can be a lot longer though. At the end of the fixed rate period your mortgage rate would then revert to the lender's standard variable rate (SVR). It used to be the case that fixed rate mortgages were normally a little lower than the SVR but with interest rates now at record lows it is often the other way around.

Short term fixed rate mortgages are those where the rate is fixed for five years or less. Long term fixes are from over five years and anything up to 25 years. A mortgage which is fixed for 25 years is also known as a lifetime mortgage but these are very rare.

As a rule of thumb, the shorter the term of the fixed rate period the lower the rate is likely to be. This is because pay a premium for having the increased period of security. People like short-term fixes as they give the borrower the chance to reassess the market in the not too distant future.

The peace of mind that comes with a fixed rate mortgage is the main advantage of having a one. And if the Bank of England raises its base rate rises during the period you could end up saving yourself thousands of pounds. Conversely, if the base rate falls you could end up paying over the odds and might then wish you had stuck with the standard variable rate.

Other things that you need to be on the lookout for with fixed rate mortgages are the associated fees. Both arrangement fees and early repayment charges (ERCs) are often higher than with other types of mortgage. ERCs will usually apply for the entire length of the fix and can be as much as 5% of your outstanding loan. The size of the fee usually decreases in steps as time progresses.

There is a lot to consider so it is a good idea to talk to a mortgage advisor who can advise you on all the different options. They will tend also to have access to deals which are not available on the high street.