What is a Fixed-Rate Mortgage?
A fixed-rate mortgage is where the interest rate, and your monthly repayments, stay the same for the length of the fixed term. Fixed-rate mortgages are typically offered for 2, 3, 5 and 10 year periods.
They offer fixed payments and protection from interest rate rises, but are slightly more expensive than variable rate mortgages.
Is a Fixed-Rate Mortgage Right for Me?
If you want to know exactly what you’ll pay for the mortgage length, and are confident you aren’t going to move house during this period, then a fixed rate could be right for you. They offer peace of mind for anyone worried about fluctuating interest rates.
But they are risky. Depending on the length, it can be a long time to be tied into a mortgage deal. Also, you won’t benefit from being able to remortgage to a better rate as you repay your mortgage and owe less.
The Pros and Cons of Fixing
Pros
Security. No matter what interest rates do over the set time period, your monthly repayments won’t be affected.
Forward planning. Budgeting for your future will be a lot easier if you know exactly what your mortgage is going to cost you over the chosen period.
Save on fees. By not remortgaging for the fixed period, you will save in administration fees.
Pay less. If interest rates rise, you could end up making big savings compared to people with variable rate, or shorter fixed-rate, deals.
Cons
Expensive. A longer fix will tend to have a higher interest rate than other deals on the market, as you’d pay a premium for the lengthy locked-in rate.
No chance of falling payments. If interest rates fall over the mortgage term you won’t see any benefit.
Locked in. If your circumstances change over the mortgage term, you may have to pay hefty fees to get out of your mortgage deal.