Fixed rate mortgages, or fixed loans, are mortgage loans that are charged an interest rate that does not change for a portion of or the entire life of the loan. In other words, fixed loans lock in a going interest rate for a set period of time that is decided upon by you and your lender before you sign your loan contract. Many fixed loans offer the fixed term option for between two and ten years. However, some companies are now offering fixed rate terms of up to 25 years. After the fixed rate term has finished, the interest rate charged usually reverts to a variable rate.
An advantage of fixed loans is that you know exactly how much your monthly repayment will be. If you are charged a variable interest rate, your monthly repayments will more than likely never be the same. Many people, however, have been wary of fixed loans because of some of the fees involved. With fixed loans for mortgages, the initial fees are often higher - you are paying for peace of mind. Due to the low consumer confidence, as was found in a poll by Nationwide, according to FT.com, people are looking for stability, which is a reason that many people are now looking past the initial fees.
In addition, if you want to repay your mortgage more quickly, there are often early repayment fees; however, this is changing. Many companies are increasing the amount of overpayments allowed annually on fixed loans, which makes fixed loan plans more flexible. And in October, the chancellor proposed to help lenders by working on measures towards lowering the fees.
Currently, because of the financial downturn, interest rates have gone down in order to free up more capital for consumers. And because mortgage approvals have fallen to lows not seen since the 1990s, the Bank of England has felt pressure to lower interest rates, which is good news for those looking into mortgages, or fixed loans.