Fixed Rate Mortgages

General - What are they all about? - So where is the catch? - Set up costs 

 

Fixed Rate Mortgages, General

Fixed rate mortgages are an extremely popular choice in the mortgage market and  especially amongst first time buyers. In an increasingly uncertain economic climate, fixed rates offer a small piece of certainty in an otherwise changing world.

Fixed rate mortgages tend to suit those who:-

  • Like to know what their monthly outgoings will be
  • Are working to a fixed budget
  • Are uncomfortable or unable to cope with a rise in interest rates pushing up the cost of their mortgage. 

Fixed Rate Mortgages, so what are they all about? 

With a fixed rate mortgage the interest rate that applies to your mortgage will be fixed for a specified time. In exchange for offering a fixed rate, the lender will usually charge a booking/arrangement fee. 

 "...Lenders tend to offer their lowest fixed rates over periods of 2, 3 and 5 years."

   

Lenders tend to offer their lowest fixed rates over periods of 2, 3 and 5 years. Longer term fixed rate mortgage are becoming more widely available. After your fixed rate period has expired, your mortgage will revert to the lender's normal variable rate unless you take action.

You will usually be tied in to your lender for the duration of your fixed rate. If you have to repay the mortgage or switch lenders during your fixed rate, a penalty charge may apply. Whilst becoming more uncommon, some fixed rate mortgages still carry what is known as an extended tie-in period. An extended tie-in will oblige you to stay with the lender on their normal variable rate after your fixed rate has expired or pay steep exit charges to leave.

As well as the general phasing out of fixed rate mortgages with extended tie in periods, many lenders allow you to make overpayment's of up to 10% of the mortgage balance each year or transfer your existing mortgage product to a new home if you decide to move (this is often referred to as porting)  

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Fixed Rate Mortgages, so where is the catch? 

Fixed rates offer the peace of mind that your payments will not increase. When rates are rising and everyone is feeling the squeeze, it's easy to feel good about the decision to have taken a fixed rate. Conversely, it is easy to feel bad about the decision to take a fixed rate when rates are falling. This is because others will be benefiting from lower payments whilst you are stuck paying the same as you always have.

   

"...Fixed rates offer the peace of mind that your payments will not increase."

No one has a crystal ball or knows what rates are going to do, so it's important to be clear about the reasons why you might take a fixed rate in the first place. If rates do fall and you took a fixed rate mortgage, make sure it was because you wanted stability, certainty or felt your budget could not afford unpredictable rate rises. Do not take a fixed rate because you feel you can predict the next 2 or 3 years interest rate changes.

Remember lenders price their fixed rate mortgages on the basis that over the term of the fixed rate they will make money.

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Fixed Rate Mortgages, set up costs. 

As previously mentioned, Fixed Rate Mortgages are in effect a limited special offer product. To obtain the fixed rates offered you usually will have to pay a booking fee. Over the last 18 months there has been a move by the lenders towards higher booking fee's. Historically you may have been able to obtain a fixed rate with a booking fee of £399, now a Lender is more likely to charge £999-£1999 or 0.5% - 1.5% of the amount borrowed for their lowest fixed rates. 

It is extremely important not to become totally rate focused when choosing your mortgage. A very low fixed rate mortgage (often the ones that look to good to be true) may come with excessive booking fee's and very little flexibility, making it very costly in the long run. If briefed to find the best mortgage deal, a good Independent Financial  Adviser will run an analysis based not only on the rate, but the amount you intend to borrow, the total interest and fee's payable when working out which mortgage is most suitable for you. 

If you are considering a new mortgage or remortgage, please feel free to contact us to talk with an Independent Financial Adviser and Mortgage Broker. We are able to provide home appointments across the whole of West Sussex - Brighton, Hove, Haywards Heath & Crawley, East Sussex, Surrey - Croydon Sutton, Reigate, Redhill,  South London - Wimbledon, Fulham, Chelsea and Hammersmith and Central London.

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"Your home may be repossessed if you do not keep up repayments on your mortgage."