Help Desk

What is Fixed Rate Mortgage?

With this type of mortgage, the interest rate is usually fixed for a limited amount of time, usually between two, three or up to five years. This ensures that the mortgage repayments will remain constant throughout this fixed period, irrespective of any fluctuation on the Bank of England base rate. The advantage to the borrower is that the mortgage repayments are known or fixed, and there will be no unpleasant or even pleasant surprises.

Risk that interest rated could fall

For obvious reasons this type of mortgage can be very attractive to first time buyers and those with a limited budget who need to keep a tight rein on finances. It can also be especially reassuring during volatile fiscal periods when interest rates may rise often and spectacularly. However, there is also a risk that interest rates could fall and the lender on a fixed rate could be repaying more than would have been necessary had the (STV) option been taken up. If you have opted for a long term fixed rate then this decision could cost you dearly over the period of the fixed rate.

Redemption Penalties

You will also find that, with most fixed rates, you will be charged a penalty (called a redemption penalty) if you wish to change your mortgage or pay it off completely or in part in the first few years.  These redemption penalties are usually imposed at a level that would make it uneconomic to change the mortgage or transfer to another lender whilst the penalty is in place.

There are many lenders who offer fixed rates without redemption penalties or with penalties that only last during the fixed rate period.