What is a fixed rate mortgage?
Dreams of owning your own home may be unfulfilled if you can’t afford payments due to the ever rising interest rates. If this is the case, a fixed rate mortgage may beneficial because the interest rate will not change during the term of the loan.
When you apply for a fixed rate mortgage, you can calculate future monthly payments with certainty because the interest rate is fixed, and your payments will not vary. However, if interest rates fall, you are stuck with the interest rate you agreed upon at the beginning of your mortgage term.
Why do I want a fixed rate mortgage?
When you want to calculate what your monthly expenses are going to be so that you can plan for the future, a fixed rate mortgage, as the name suggests, stays fixed. This allows you to be certain that your payments will not increase or decrease during the term of your loan. Fixed rate mortgage period is very short between, commonly between two to five years.
With a fixed rate mortgage, you calculate the term in which you will pay off all the principal and interest, and you will arrive at a monthly payment. Your monthly payment remains constant throughout the entire term of the fixed rate mortgage.
For first time buyers, fixed rate mortgages may be a good option since with variable rate mortgages your payments will fluctuate according to the Bank of England Base Interest Rate. However, with a fixed rate mortgage you know exactly what amount you will need to pay each month, regardless of changes in interest rates.
What are the disadvantages of a fixed rate mortgage?
With a fixed rate mortgage, even when interest rates decrease, you will have to pay the same amount of interest you agreed on at the commencement of your loan term, even if it is higher than the current interest rate. If this becomes a problem, it may help to speak with a mortgage lender or counselor who may be able to help you figure out a better payment option.
When you opt for a fixed rate mortgage you will be charged a penalty (called a redemption penalty) if you wish to change the terms of your mortgage or pay it off completely or in part before an agreed upon date. Often, these redemption penalties are fixed at a level that would make it uneconomical to change the mortgage or transfer to another lender before the agreed upon date.
If you'd like help finding the best fixed rate mortgage loan for you, take a minute to fill out out short questionnaire, and a SimplyFinance representative will contact you shortly to introduce you to a mortgage broker. Your broker will work and search to find the best fixed rate mortgage deal for you.