A MORTGAGE is arguably the biggest financial commitment you’ll ever make, so understanding the options available to you is extremely important. One of the biggest decisions you face when choosing a mortgage is whether you should go for a fixed, tracker or variable rate.
If you have taken out a fixed-rate mortgage, your interest rate is set for a specific length of time. The interest rate – and consequently your monthly mortgage repayment – will remain unchanged for an agreed number of years.
The main advantage of a fixed-rate mortgage is that you can predict with certainty what your mortgage repayments will be for a set period of time. This can be extremely helpful when working out your monthly budget, as you’ll know exactly how much needs to be set aside for your mortgage.
There will be early repayment charges (ERC) during the fixed rate period, so if you repay all or some of the mortgage you could be landed with a hefty bill. Most mortgage lenders allow you make overpayments of up to 10% per year with incurring charges.
Having a fixed rate that is portable could help if you wish to move during the fixed term. Our article Can you move home with a fixed rate mortgage? will help to explain the options.
The interest rate stays the same for the set period of time, usually between one to five years. When the fixed rate term expires, you’re automatically switched to a standard variable rate (SVR). This is usually either your lender’s SVR or a tracker rate.
Once the fixed rate term expires, you have two choices – you can either swap to another fixed rate deal, or switch to a variable rate mortgage.
If you’re thinking of taking out a mortgage, or if your current mortgage is coming to an end, it’s important that you compare all of the different options available to you in order to find the best deal for your individual circumstances.
A whole of market mortgage broker can help you to compare a wide range of different mortgage deals from a number of different lenders, all in one place. They make the process of finding the right mortgage simple, quick and easy.
If your fixed rate period is about to end, it’s a good idea to start looking about two to three months before your current deal finishes. This will give you plenty of time to compare deals and find the best mortgage for you. If you’re not sure what kind of mortgage would suit you best, then contact a mortgage broker for expert help.
If you’re concerned about the stability of your financial situation and would rather know exactly how much your monthly mortgage repayments are each month, a fixed rate mortgage could be the right option for you.
Key points to consider about fixed rate mortgages include:
- You know how much you’ll pay each month, helping with monthly budgeting
- Your payments will not go up during the fixed term
- If market rates drop, you wouldn’t benefit from lower repayments
- The interest rate could rise after the fixed term ends, so your monthly repayments could become more expensive.
If you’re not sure whether a fixed rate mortgage is right for you then we recommend speaking with an independent mortgage broker.
