Advantages of the fixed rate mortgage are that the borrower locks into a fixed repayment cost over an agreed period. This is usually for the first 2-5 years though there are a variety of options to choose from.
A Fixed rate gives a degree of certainty over the budget for the borrower. This can give valuable peace of mind in the early stages of the loan when affordability will be an issue for most people. This can be an added bonus for First Time Buyers (FTB), who is usually borrowing up to the limit.
For young couples who want to spend money on getting the house looking the way they want it to, new kitchens and bathrooms etc, having a fixed mortgage payment each month prevents any nasty shocks on the first Thursday of every month. The first Thursday of each month is the time the Bank of England (BoE) meet to decide if they are going to put interest rates up, down, or leave them the same. The potential disadvantage of a fix is that, if the BoE Rate drops below the fixed rate, customers who are locked in will be paying over the odds. But if someone in rented accommodation was offered to have their rent fixed for five years, do you think they’d take the offer?
Some points to remember:
Lenders may charge an arrangement or booking fee to have the fixed rate mortgage.
If you want to repay the mortgage off fully, you will be charged a redemption penalty if you do this within the fixed rate period. You may even be charged for partial redemptions. (Redemption penalties are covered in more detail on another page on this site).
The longer the fixed rate period the higher the interest rate, generally.
At the end of the fixed rate term the interest rate usually reverts to the lender’s Standard Variable Rate.
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