What is a Fixed Rate Mortgage?

Discover how a fixed rate mortgage works and how it can assist you in managing your finances.

A fixed rate mortgage is a type of home loan where the interest rate remains constant for the duration of the agreed period. This stability can be a valuable tool for budgeting, as it provides a clear picture of your monthly payments.

How Does a Fixed Rate Mortgage Work?

With a fixed rate mortgage, your interest rate stays the same for a set number of years, ensuring predictable monthly payments. This contrasts with variable or tracker mortgages, where interest rates can fluctuate.

Having a fixed rate eliminates unexpected changes in your mortgage statement, giving you greater control over your monthly expenses compared to other mortgage types.

Length of Fixed Rate Mortgages

Typically, you can secure a fixed rate for periods ranging from two to five years. Some lenders also offer fixed rate terms of seven, ten, or even longer.

A key advantage of a fixed rate mortgage is insulation from changes in the Bank of England’s interest rate. If interest rates rise, your repayments remain unchanged for the duration of your fixed term. Conversely, if rates fall, you might miss out on lower repayments unless you pay an early repayment charge to switch deals.

What Happens When the Fixed Rate Ends?

Once your fixed rate period ends, if you haven't arranged a new mortgage deal, you will automatically shift to the lender's standard variable rate (SVR). The SVR can vary frequently and is usually less favourable than a fixed rate, so it’s advisable to explore new mortgage deals before your fixed term concludes.

Fixed Rate Mortgages: Pros and Cons

Advantages:

• Predictable monthly payments, aiding in financial planning.
• Flexibility in choosing a short or long fixed term based on your future plans.
• Protection against interest rate increases during your fixed term.

Disadvantages:

• Missing out on potential savings if interest rates decline.
• Early repayment charges can be expensive if you need to exit the fixed term early.
• Moving to an SVR after the fixed term ends can lead to higher payments if a new deal isn’t secured in time.

Need Further Guidance?

Fixed rate mortgages can offer stability and peace of mind, but it’s essential to weigh the pros and cons based on your financial situation. If you need further advice, our expert team at Empreso Private Clients is here to help you navigate your mortgage options and find the best deal for your needs. Contact us today for personalised assistance.