A fixed rate mortgage is where your interest payments are fixed at a specified level for specified period of time and means that you will pay the same amount of interest for a specified term (usually between one and five years). This allows you to budget more effectively at the start of your mortgage.
Fixed Rate mortgages offer just one solution to the dilemma of possible future interest rate rise by offering a fixed rate of interest on the mortgage for an agreed amount of time. The time span of the mortgage will typically be between 1-5 years but other time periods are on offer depending on the lender and mortgage that you choose.
Interest repayment is the element of any mortgage that has the biggest impact on the monthly out-goings of the borrower. The average house buyer will try to manage their costs as much as they can. Because the UK base rate is set by the Bank of England and is subject to external factors it is the one variable that canít be predicted in advance by borrowers. There are however mortgages that aim to take interest rate movement into consideration and the Fixed Rate mortgage is one of them.
When home buyers borrow money to purchase the home of their dreams one of the obvious concerns that they face is the risk of unforeseen interest rate rises. Itís a very real possibility no matter how stable the economy is at any given time.
Possible Rate Fluctuations
Of course the interest rate is known at the time the mortgage is taken out but what will it be six months later What seems affordable at the time of the house purchase may become quite a bit more expensive if there is an interest rate hike. While current financial trends and recent fiscal history can give a clue to possible rate fluctuations in truth they are no more than a rough guide that can be out of date as soon as they are printed.
Fixed Rate Vs Variable Rate
Interest rates are influenced by global as well as national events and they can of course fall as well as rise. The possibility of a fall in the base rate often tempts consumers to favour a Variable Rate mortgage but the possible gains have to off-set against the possible monthly losses of a rise in the base rate.