Fixed Rate Mortgages

For those who are averse to risk when it comes to making your mortgage payments, taking out a fixed rate mortgage may be right for you.

Find out more about how these mortgages work.

What is a Fixed Rate Mortgage?

For peace of mind, fixing your mortgage payments, for an agreed period of time, means that you will not pay over a certain amount a month for your mortgage.

Every mortgage is split into two parts, capital (which is the bulk of the funds borrowed to purchase a property) and interest. The interest you pay when taking out a fixed rate mortgage stays the same, regardless of fluctuations in the Bank of England Base Rate and your own lender’s standard variable interest rate.

When taking out a fixed rate mortgage, it is important to choose the time period carefully, to ensure that your mortgage payments remain manageable for the duration.

Am I Eligible for a Fixed Rate Mortgage?

  • Most likely, you will have to be over the age of 18 to take out a fixed rate mortgage. The upper age limit for this type of mortgage will vary from lender to lender.
  • You must pass the lender’s credit history check. To find out more about your credit score, take a look at our Guide to Improving your Credit Rating.
  • You must have a steady enough income to support your monthly mortgage payments.
  • The amount of money needed for a deposit may vary from lender to lender, but you will need some savings to put as a down payment on your property. 
  • You will have the legal right to work and live in the United Kingdom.

How is a Fixed Rate Mortgage Repaid?

When applying for a fixed rate mortgage, you are making an agreement with the lender that you will pay a set amount every month towards the capital and interest of your mortgage loan, for the entirety of the fixed payment period.

At the end of the fixed period, your rate of interest will likely automatically switch to your lender’s standard variable rate for the remainder of the mortgage term (which could be up to 23 years or longer).

Paying a fixed rate for a certain period acts as an incentive to would-be borrowers. At the end of your fixed period, you could decide to switch lenders and remortgage. Exiting the deal early, on the other hand, may incur an early repayment charge.

To find out more about the cost of taking out a mortgage, take a look at our Guide to Applying for your First Mortgage.

What are the Benefits of a Fixed Rate Mortgage?

  • Security – It will be made explicitly clear how much a month your mortgage will cost you. For those who are on a tight monthly budget, this can offer you peace of mind.
  • Interest Rates – You may be able to find a very competitively charged fixed rate deal. The interest could be very low, to attract new customers with good credit ratings.
  • Portable Mortgages – Many fixed rate mortgages are portable. This means that if you decide to move, you can transfer your mortgage to the new property. However, providers may wish to re-assess your mortgage application before doing this.

How Long Should I ‘Fix’ my Mortgage Payments?

An independent mortgage broker can help you figure out how long you should fix for (whether it’s 2 years, 5 or 10 years). But consider the following in your decision;

  • How long do you intend to live in the property? If it is only a few years, you may need to consider the extra costs of remortgaging, if you fix for short time.
  • How much do you have for a deposit? The higher your deposit amount, the more likely it is you will be offered a low rate of interest.
  • What do you think will happen to interest rates? At the time of writing, interest rates are very low. For those thinking about a fixed rate deal, fixing your mortgage for many years will mean that you could potentially miss out on paying historically low rates of interest on your mortgage. However, if you think they are likely to rise soon, then fixing will ensure that your payments will never rise.

Let’s Look at an Example;

Beverly is looking to buy her first home. She wants the security of a fixed rate mortgage and is now deciding if she wants to fix for two or five years. She has seen a five-year fixed rate mortgage deal, charged at 4.15% interest. She has also spotted a 2-year fixed rate deal for 3.5% interest. Beverly would like to keep her payments as low as possible, however, she is aware that the security of a 3.5% fixed interest rate will be short-lived. She goes for the five-year fixed rate deal, at a higher rate of interest. This will give her security for a longer, whilst still being very competitively priced.

What are the Pitfalls of a Fixed Rate Mortgage?

  • No Benefit from Interest Rate Falls – Those locked into a fixed rate mortgage pay the same amount in interest every month. Some mortgage types (such as capped or tracker mortgages) can charge cheaper rates on interest when the Bank of England base rate also lowers.
  • Early Exit Charges – Early redemption charges normally apply with this mortgage type. Should you want to switch mortgage deals, you may have to pay a hefty penalty to your lender. Then you must take into account the cost of arranging a new mortgage deal.
  • Fixed Rate Set Up Costs – The costs of taking out a fixed rate mortgages can be high, many will find themselves paying a premium for the security of a fixed interest rate.
  • Auto-Switch – When your incentive period ends, your lender may switch your interest rate to their standard variable rate, which may be higher than what you are used to paying every month. Check the date the fixed period ends in your mortgage contract. Be sure that you have lined up another option, or are happy to pay the SVR rate until you do find a new deal, or your bank balance may be in for a nasty shock.

What are the Alternatives to Fixed Rate Mortgages?

  • Capped Mortgages – These mortgages move alongside the Bank of England base interest rate; however, they impose an upper limit (or ‘cap’) on the amount of interest the mortgage holder can be charged. This means you can benefit from making lower interest rate payments at times, whilst still maintaining security in your mortgage payments.
  • Tracker Mortgages – These mortgages charge interest at a price that is closely aligned to the Bank of England base rate. These are a good option for those looking to pay less interest in times when interest rates are falling. However, this mortgage type should only be taken if you can afford to pay more for your mortgage, should the base interest rate rise.

If you are asking yourself, ‘should I fix my mortgage?’  Experts are on-hand to offer you a free, no-obligation quotes and advice. Get in touch with an independent mortgage broker now.

Compare deals from the UK's leading lenders including