A fixed rate mortgage, as its name suggests, is one in which the interest rate does not change for the duration of a set period, normally between two and five years. While this period lasts, it gives the borrower the advantage that his or her repayments will stay the same each month, which can be extremely helpful when it comes to balancing the household budget.
After the fixed rate period has ended, borrowers will usually be transferred from their fixed rate mortgage on to one with a variable interest rate which, typically, will be the lender’s standard variable rate mortgage. The transfer generally takes place automatically.
Fixed rate mortgages give borrowers the ability to plan ahead because they know that their mortgage repayments are not going to change even if the Bank of England alters its base rate. Those whose budgets are tight can find them useful because of the certainty they offer.
The disadvantage of fixed rate mortgages is that they can sometimes end up having higher interest rates than variable rate mortgages. This can occur if the Bank of England base rate falls. While variable rate mortgage holders may then see their monthly repayments drop, those on fixed rate deals will not see any change. Fixed rate mortgages may also require fees to set up, and could have early repayment penalties.
For those who are confused about the best mortgage for their needs, it can be helpful to consult a qualified adviser who has undergone CeMAP Training, as he or she will be able to explain what options are available.
