For those looking for consistency in their mortgage payments, taking out a fixed-rate mortgage may be the best decision for you.
Read on to find out how these mortgages work.
Fixing your mortgage for a set period (in this case, 5 years) means that you will pay the same rate for your mortgage, per month, until the five years is up.
Mortgages are made up of capital and interest. The capital portion of a mortgage represents the money you borrow to buy the property and the interest represents the cost of your loan. Lenders have their own standard variable rate of interest for mortgages, but for those on a fixed rate deal, the interest charge remains the same.
Applying for a fixed-rate mortgage requires careful planning, as you want to make sure that you can afford to pay the same every month, for the five-year period.
Fixed periods are offered as an incentive to potential mortgage borrowers. With these deals, you are agreeing to pay a certain amount towards both the loan capital and interest, for the duration of the fixed period. When making your application however, you are signing up for the entirety of the mortgage loan to be paid off within 25 years (although it is possible to get 30 and 20-year mortgages).
At the end of your five-year fixed incentive period, your interest rate will be changed to the lender’s standard variable rate, which is subject to fluctuation. At this point, you may decide to remortgage, either with the same lender or a different bank or building society.
Switching your fixed rate mortgage deal within the incentive period may incur early repayment penalties. Take a look at our Guide to Applying for your First Mortgage, to find out more about the costs of taking out a mortgage loan.
Alan and Beth are looking to remortgage, as they have seen that the Bank of England base rate is at an all-time low. Beth anticipates that interest rates may rise soon, so the couple are looking to lock into a good rate now, so that they have reassurance in their payments for the next five years. They have found a similar low-interest rate mortgage, with a two-year fixed period and a cheaper arrangement fee. However, Alan and Beth opt for the more expensive set-up of a five-year fixed rate mortgage, as they worry about their mortgage affordability over the coming years.
If you would like some help choosing the right mortgage for your needs, get in touch with an independent mortgage advisor today. They offer free, no-obligation quotes.
My biggest concern was finding a mortgage with no strings attached. My options were clearly explained to me and I felt confident about the decision. Alice Silverman, Stoke-on-Trent
Compare deals from the UK's leading lenders including
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
The details of financial services and products published on this site are for information purposes only and do not constitute financial advice.
By submitting the enquiry form you agree that the information provided is true and accurate and that ExpertCompare.co.uk may send the details of this enquiry to an appropriate broker for the purpose of furthering your enquiry and that the broker may contact you for further information as required. We will not send, sell, loan or lease your data to any other thrid party except those needed to provide the service you have requested.
Expertcompare.co.uk is a trading style of Candid Insurance Services Ltd. Expertcompare.co.uk helps you find quotes for mortgages or insurance products by introducing you to FCA authorised companies. The content of this site is meant to be informational, and it should not be considered financial advice. Candid Insurance Services Ltd is a registered company in England and Wales. Company Number: 07279489. Data Protection Register Number: Z3488836. Candid Insurance Services Ltd is Authorised and Regulated by the Financial Conduct Authority and is entered on the Financial Services Register under number 603273.
© 2021 ExpertCompare.co.uk