A fixed rate mortgage is an agreement which states you will make the same repayment amount each month during a certain period (called fixed rate period/term). When this initial period comes to an end you will then start making repayments based on your lenders’ Standard Variable Rate (SVR). This mortgage type has benefits of course, like standard set fees which can be a great help when budgeting or saving money and can provide much-needed economic certainty and relief.
All mortgages are serious financial agreements and should not be entered into without serious consideration. Anybody thinking about taking out a fixed rate mortgage should know the following drawbacks and disadvantages that these mortgage types entail before they start researching them:
The first disadvantage is that due to the nature of this mortgage type (that it does not rely on or vary because of interest rates) you will not benefit from cheaper repayments when the Bank of England’s base rate is low and interest rates are therefore more favourable. Therefore you will not profit from favorable economic conditions as you are paying a standard flat (fixed) rate each month.
Fixed rate mortgages will almost always include a charge for paying off your mortgage early. Usually called an Early Repayment Fee, you will most likely also be charged for remortgaging during the fixed rate period.
The best fixed rate mortgages will more often than not charge a high arrangement fee (also called booking fee, completion fee or administration fee). This fee can be anything from several hundred pounds to a couple of thousand pounds so be sure to look out for these as many are hidden or disguised by the cheap mortgage deal presented.
Besides the standard fixed rate mortgage type, there are ‘flexible’ fixed rate mortgages which may be a better option depending on your circumstances. The main difference with the flexible mortgage type is that there are no charges incurred if a customer wishes to make a series of overpayment on their mortgage- you would only be charged if you wanted to repay the mortgage in full (Redemption Penalty).
If you are not so cautious with your money and you’re always seeking the best deal or a bargain, a fixed rate mortgage may not be the best mortgage for you. You may wish to research a variable rate mortgage if you want to enjoy cheaper repayments when the country is also enjoying better interest rates.
Cost is an online comparison website that specialists in all insurance, finance, travel and utility needs.
All mortgages are serious financial agreements and should not be entered into without serious consideration. Anybody thinking about taking out a fixed rate mortgage should know the following drawbacks and disadvantages that these mortgage types entail before they start researching them:
The first disadvantage is that due to the nature of this mortgage type (that it does not rely on or vary because of interest rates) you will not benefit from cheaper repayments when the Bank of England’s base rate is low and interest rates are therefore more favourable. Therefore you will not profit from favorable economic conditions as you are paying a standard flat (fixed) rate each month.
Fixed rate mortgages will almost always include a charge for paying off your mortgage early. Usually called an Early Repayment Fee, you will most likely also be charged for remortgaging during the fixed rate period.
The best fixed rate mortgages will more often than not charge a high arrangement fee (also called booking fee, completion fee or administration fee). This fee can be anything from several hundred pounds to a couple of thousand pounds so be sure to look out for these as many are hidden or disguised by the cheap mortgage deal presented.
Besides the standard fixed rate mortgage type, there are ‘flexible’ fixed rate mortgages which may be a better option depending on your circumstances. The main difference with the flexible mortgage type is that there are no charges incurred if a customer wishes to make a series of overpayment on their mortgage- you would only be charged if you wanted to repay the mortgage in full (Redemption Penalty).
If you are not so cautious with your money and you’re always seeking the best deal or a bargain, a fixed rate mortgage may not be the best mortgage for you. You may wish to research a variable rate mortgage if you want to enjoy cheaper repayments when the country is also enjoying better interest rates.
Cost is an online comparison website that specialists in all insurance, finance, travel and utility needs.
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