What is a fixed rate mortgage?
Basically, it is a mortgage where the interest rate is set for a specific number of years.
Most of our clients prefer a fixed mortgage as they know exactly how much their monthly repayments will be for the fixed rate period.
As the rate is fixed, no matter what happens to interest rates during this time, whether they go up or down, your payments will remain the same. Unlike other types of mortgages, this gives you the peace of mind that your mortgage payments won't suddenly jump or drop! Making budgeting much easier.
With many fixed mortgage rate deals to choose from covering a variety of terms ranging from two up to 10 years, or sometimes longer, we will be able to find you your perfect fixed rate mortgage.
The interest rate you’ll pay varies depending on how long you fix your mortgage for. As a general rule, the longer you fix for, the higher the rate will be.
When you reach the end of your fixed rate period, you are originally transferred to the lender's standard mortgage rate, known as the standard variable rate or SVR. This is normally higher than the fixed rate you were paying, and your payments could increase. We would recommend you let us source another fixed rate deal when your current fixed mortgage rate finishes.
You don’t need to wait until your current deal has finished before you source a new one. We would never recommend allowing your deal to lapse meaning you move to the lenders SVR.
As many mortgage offers are valid for several months from the date they are issued, so you can go straight from one deal to another.
Let’s talk about the product term
A mortgage term is different from the product term. For example, you may have taken a 30-year mortgage but only signed up to a 3 year fixed rate. In this guide, we are only looking at the product term.
Remember, at the end of the fixed rate term your payments could increase as you will be automatically moved to the lender's standard variable rate (SVR). Don’t let this happen, speak with one of our friendly mortgages advisors who will explore all your options.
2 year fixed rate mortgage
This is a mortgage where the interest rate is fixed for 2 years. This means your mortgage payments won’t change for 2 years, regardless of what happens to the base rate.
So, if the interest rate rises during the term you won’t pay more, but equally, if interest rates fall you won’t benefit from the saving.
Typically a 2 year fixed rate mortgage would work for someone who is looking for a short term option, you might be due a promotion or increase in your income, be looking to move home within the next couple of years or simply don’t want a long term commitment.
A short term mortgage does tend to cost less than a longer commitment, because of this they tend to be regarded as the cheapest of the fixed rate deals.
3 year fixed rate mortgage
As with the above, the rate is fixed, but in this instance for 3 years.
A 3 year fixed rate mortgage is ordinarily cheaper than a 5 – 10 year deal whilst giving a little more protection to an interest rise than a 2 year fixed rate mortgage.
5 year fixed rate mortgage
This is a medium to long term commitment as the interest rate is fixed for 5 years. When you lock into a rate you should expect to pay an early repayment charge (ERC) if you choose to leave the deal before the end of the product term. The charge varies between lenders but typically it is linked to the numbers of years outstanding, so 5% charge of the total mortgage balances in the first year decreasing to 1% in the final year.
The interest rate you will pay will be higher than a 2 or 3 years fixed rate mortgage as the lender is giving you budget certainty over a longer period of time.
This type of mortgage is best suited to someone who isn’t planning on moving home, does not believe rates will drop within the term and is not foreseeing a change to their current personal situation.
10 year fixed rate mortgage
This is a long term commitment and needs to be given careful consideration. As with a 5 year mortgage, an early repayment charge will be payable if you choose to exit the mortgage early.
A 10 year fixed rate mortgage will be the most expensive option when compared to a 2, 3 or 5 year deal. But, you will have certainty that your mortgage payments will not change for 10 years.
Most 10 year fixed rate mortgages are portable, this means you can transfer them to a new home within the product term. However, you will have to re-apply for the mortgage and the lender will reassess your affordability and eligibility.
The above is an example of some of the product terms available. Our expertise Mortgage Advisors will take the time you understand your individual needs before recommending a term.
With the number of deals changing daily it really is important to take professional advice.