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.
Advantages to Fixed Rate mortgages
The huge advantage offered by a Fixed Rate mortgage is the absolute knowledge of what the monthly mortgage repayments will be over the span of the agreement. The peace of mind that this assurance provides to some borrowers cannot be overstated. For house buyers with limited income or low probability of increased income at least the borrower will know that the house payments can be met for the given time period.
Protection For Borrowers
The Fixed Rate mortgage offers protection to borrowers against any rise in the Bank of England base rate above the fixed rate figure. Although a comparable Variable Rate mortgage will move downwards with the interest rate it has no upper limit if that rate suddenly climbs and therefore offers no cushion against rate rises. Rate rises can be sudden sparked by any number of economic events and the subsequent rise in monthly mortgage repayments is always an uncomfortable adjustment.
Borrowers who need to know exactly how much they are going to be paying each month can use a Fixed Rate mortgage as they will always know what the maximum amount that they will need to find each month will be. That makes planning much easier without the risk of having to find extra money.
Large Pool Of Fixed Rate Mortgages To Choose From
The other advantage of Fixed Rate mortgage is their popularity and abundance. Borrowers will be able to choose from a large pool of Fixed Rate mortgages from any number of lenders, each with their own features and offers. Comparing the rates to fix on will be the hardest part of the process.
A Fixed Rate mortgage also gives a degree of certainty to the lender who knows that the rate canít drop below the agreed fixed rate. Although they will also be shouldering some of the risk of a large interest rate rise it does mean that the Fixed Rate mortgage should be more competitive than a Capped Rate mortgage where interest rate falls are passed on to the consumer.