A fixed rate mortgage does what it says on the tin; the general idea that your mortgage repayments remain at a fixed rate for an agreed period. The period of a fixed rate is often anywhere between two and ten years. The good thing about a fixed rate mortgage, as our advisors at Central Mortgages will tell you, is that you’ll know how much your mortgage is going to cost each month.
The Problem with Fixed Rate Mortgages
Fixed rate mortgages are not always the cheapest, but the advantage is that you know what your payments will be for the given period. The problem with fixed rate mortgages is that if the interest rate goes down, your repayments will remain the same for the agreed period. Right now, however, interest rates are extremely (even historically) low, which means that it is highly unlikely they will go down. Most mortgage brokers offer fixed rate mortgages as an incentive for first time buyers, as they’re very likely to be on a limited monthly budget.
Something to Think About
Once the agreed period for the fixed rate is over, you will then be paying the usual SVR, or standard variable rate. What this means is that you could be paying more or less on your mortgage each month, depending on what interest rates are doing. If you are offered a fixed rate mortgage, then think carefully about how long you want it to stay fixed. The longer you have the rate fixed, the more expensive your repayments could turn out to be.
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