There’s great variety in the UK mortgage market. There are thousands of mortgage deals available at any given time, from hundreds of mortgage lenders. That’s why it’s good to be clear about the types of mortgage that exist and how you might benefit from selecting a certain type of mortgage.
A fixed rate mortgage is a mortgage where the interest rate that applies to a mortgage is fixed for a certain period. This compares with a variable rate mortgage, where the mortgage interest rate moves up and down with the Bank of England base rate.
Fixed rate mortgages are available for varying periods. Many lenders make fixed rates available for two, three or five years. However, there are also deals with a short introductory fixed rate and deals with a much longer period. At the end of the fixed rate period, the rate usually returns to the standard variable rate, which may be much higher, depending on the deal you have.
Who Needs Fixed Rate Mortgages?
Fixed rate mortgages suit people who want to know exactly how much their mortgage payments will be over a set period. This provides some measure of financial stability and is one of the main advantages of fixed rate mortgages. For example, if you took a good fixed rate deal a couple of years ago, your mortgage payments would have stayed the same while the Bank of England base rate – and the mortgage interest rate from most lenders – rose last year. Of course, fixed rate deals may have fewer advantages when interest rates fall, as you will be tied to your fixed rate deal, no matter how low the rate falls on other deals.
Many lenders charge a substantial up front booking or arrangement fee for a fixed rate mortgage. The better the fixed rate deal, the higher that fee is likely to be. Something to watch out for is the early redemption charge. If you repay the mortgage too early, you could find yourself having to repay a proportion of the money you have ’saved’ on a fixed rate deal. Even worse, you may find that the early redemption period lasts for some time after the fixed rate deal has ended, tying you in to an uncompetitive mortgage deal for a long period.
Fixed rate mortgages are available everywhere. Whether you are getting a standard mortgage, a bad credit mortgage, a remortgage or a deal for first time buyers, you will be able to get fixed rate mortgages from almost every lender.
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