Fixed Rate Mortgage

The concept of a fixed rate mortgage is simple. No matter what happens to the ECB rate, your monthly repayments remain the same for however long the rate is fixed for. In return for this peace of mind, you have to commit yourself for a set period of time. If you decide within this period to move home or change mortgage lender, you will be charged a early repayment penalty called a 'breaking fee'.

Fixed Rate Basics:

• The fixed rate period can be as short as 1 year, or as long as 20 years.
• Generally speaking, the longer you fix the rate for, the higher the interest rate.

PROS of a fixed rate mortgage:

• You are not affected by rises in interest rates
• Most people find it is easier to budget because payments are consistant.
• Provides peace of mind for people on a tight budget.
• Worth considering if you think rates will go up.

CONS of a discount rate mortgage:

• You will not benefit from decreases in interest rates
• You are tied in for a set period of time (you'd have to pay a penalty to get out early).
• Fixed rates tend to be less flexible than variable or tracker rates. For example, most lenders won't allow you to make any additional or lump sum payments.
• When the fixed rate expires, some lenders will automatically move you over to a standard variable rate, rather than a better value tracker mortgage.

Who does a fixed rate mortgage suit?

• They are particularly good for first time buyers and anyone on a budget.

The most important thing to remember about fixed rate mortgages:

• If you are planning to take a fixed rate, ask yourself if there is any possibility that you will change lenders, or pay off your mortgage within the fixed rate period.
  
  
• So, if for example you think you might move in 3 years time, you should take a fixed rate of less than 3 years, so you can avoid paying early repayment penalty fees.

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