It is easy to see the benefits of a fixed rate mortgage loan, in that you pay exactly the same each month throughout the agreed period. However, for the purposes of finding the best deal, it is important to bear in mind that there may also be some disadvantages of a fixed rate mortgage loan, when compared against other potential mortgage products. Although the current economic climate would suggest that interest rates are only going up, there is always the danger of interest rates falling again within the term of your fixed rate mortgage loan, which would result in you paying more than you would have done on a tracker mortgage.
Another potential downfall of a fixed rate mortgage loan is that you are required to make a firm commitment to the lender over this period. This means that if you get a particularly good deal on your fixed rate mortgage loan, you will be tied in for a significant period of time. As a result, you would be unable to leave your fixed rate mortgage loan and move to another lender without incurring severe penalties. These charges are designed to outweigh any savings that you would get from moving and thereby persuade you to remain with the lender until the end of your contract. You may also find a fixed rate mortgage loan inflexible in that you are usually not allowed to repay more than you originally agreed upon, and early repayment charges are levied if you try to do so. Speak to a qualified adviser if you are interested in a fixed rate mortgage loan, as they will be able to give you informed and impartial advice about whether this type of mortgage is right for your circumstances.
Fixed Rate Mortgage Advantages
- Fixed rate stability allows you to plan ahead. With stable monthly payments, you can safely plan ahead with your finances because you'll at least know how much you'll have to pay for your mortgage each month. There won't be any sudden increases in your payment amount, so you'll know how much you'll have left for other expenses after making your payment.
- Extra payments will be applied to the principal. In the beginning, all of your payments will go toward paying off the interest of your fixed rate mortgage. Later, your payments will be applied to the principal. However, if you make overpayments, that money will be applied to the principal, and you'll be able to pay your loan of sooner.
- Your interest rate will remain stable for up to 15 years. When you go for a longer-term mortgage deal such as a 15 year fixed rate mortgage, you can guarantee that, whatever happens in the housing market, your interest rate will remain stable over this period. Speak with your lender to set the fixed rate term of your loan.
Mortgage Payment Calculator
First Time Buyers, Your Time Has Come!
How much is your Mortgage really costing you?