Fixed-rate mortgages are a popular choice for many homeowners due to their stability and predictability. Here is a summary of the pros and cons to consider:
What is a fixed-rate mortgage?
A fixed-rate mortgage is a home loan with a fixed interest rate for a given period of time, for example, 2 or 5 years. This means that your monthly mortgage repayments will remain unchanged for the duration of the fixed term. Most lenders offer fixed-rate mortgage terms ranging between two and five years, but you can find lenders who offer longer fixed-rate deals.
What happens when my fixed-rate mortgage approaches the end of the fixed period?
As you reach the end of the fixed-rate period, your lender will offer a new fixed rate. However, there is no guarantee as to what rates will be at that point in time. If you do not secure a new fixed-rate deal, you will be placed onto your lender’s standard variable rate. This is susceptible to rate fluctuations, which may not always be the most cost-effective.
How long should I fix my mortgage for?
This is a tricky question and will depend on individual circumstances and requirements. A longer-term fix, such as five or ten years, will provide longer-term payment security, but could mean that if interest rates fall, you will not be able to take advantage of lower interest rates. Equally, taking a shorter fixed-rate product, for example, a two-year fixed rate, may mean that you risk paying more for your mortgage later on if rates are higher when your fixed rate ends. How long should you fix will depend on your appetite for risk, a fixed rate can remove the uncertainty of variable monthly payments.
What are the pros and cons of a fixed-rate mortgage?
As with any mortgage product, there are both pros and cons; it is important to remember what is right for you. Speaking to a mortgage advisor will help you compare the advantages between different fixed rates, helping you decide what is most suited to your circumstances.
Advantages of fixed-rate mortgages can include:
- Predictability and consistency
- The main advantage of having a fixed mortgage rate is that you will know exactly what you are going to be paying each month for a set length of time and can budget your finances accordingly.
- Protection from rate increases
- If interest rates rise you will not be negatively impacted. Your interest rates are locked and protected for the duration of your deal, so your monthly payments will remain the same.
Disadvantages of fixed-rate mortgages can include:
Early repayment charges
With a fixed-rate mortgage, you are committing to the full length of the term, and leaving the deal early could mean early repayment fees.