What is a Fixed Rate Mortgage?

Fixed-rate mortgages are the most popular type of mortgage in the UK, chosen by borrowers for the stability and peace of mind they provide.

With a fixed-rate mortgage, borrowers have the assurance that their monthly repayments will stay the same for a specified period, regardless of any changes in the bank base rate. This differs from variable-rate mortgages where the interest payable on the loan can fluctuate.

The duration of the fixed-rate period is typically 2, 5, or 10 years, although there are now options available for 10-year and even 40-year terms.

Generally, the longer the fixed-rate period, the higher the interest rate, as borrowers pay a premium for the security of a constant rate. It is important to note that fixed-rate mortgages are usually slightly more costly than variable-rate mortgages.

Who is a fixed-rate mortgage good for?

• Borrowers who don't want to take the risk that their monthly repayments could go up, as they will be protected from this during the fixed-rate period

• People who like to be able to closely budget their monthly outgoings and, therefore, like to know exactly what their monthly mortgage repayment is going to be

• Those who believe interest rates are likely to rise during the fixed-rate period

What are the benefits of a 2-year or 5-year fixed-rate mortgage?

Opting for a shorter-term fixed-rate mortgage allows borrowers to easily plan for their monthly payments during the initial fixed period, knowing they are shielded from unexpected interest rate hikes. This is especially advantageous when interest rates are low, enabling you to secure a lower payment for a specified period.

The key advantage of a short fixed-rate agreement, lasting up to 5 years, is the increased flexibility it provides. This allows you to switch to a better deal once the fixed term expires, without being locked into a lengthy contract or facing potential early repayment charges if you choose to switch. Moreover, in the event of a decrease in the bank base rate, you can reap the benefits sooner compared to a longer-term product.

What are the benefits of a longer fixed-rate mortgage?

Longer-term fixed-rate mortgages are ideal for individuals seeking full transparency regarding their monthly mortgage repayments, eliminating the need to search for a new deal once a shorter-term fixed-rate mortgage period concludes.

What happens if you want to move house and have a fixed-rate mortgage?

Before selecting a fixed-rate mortgage with a specific term, it is important to assess the portability of the mortgage in case of relocating to a different property. Can you transfer the current mortgage to the new property seamlessly, without incurring penalties or undergoing a complex application procedure? Certain mortgages offer the option to 'port' them to a new property while maintaining the original terms.

Can you pay off a fixed-rate mortgage early?

Although switching to a different deal, settling the balance ahead of time, or making regular or occasional extra payments should be feasible, it is important to bear in mind that there might be an early repayment fee involved. Typically, the majority of mortgages permit you to repay up to 10% of the outstanding mortgage balance annually.

What happens when your fixed-rate mortgage comes to an end?

If you take no action, when the initial fixed-rate period ends, your mortgage will switch to the lender's standard variable rate (SVR), which is expected to be significantly higher than the fixed rate you were originally paying.

To prevent transitioning to the SVR altogether, it is advisable to explore your alternatives well before your current deal expires, giving you ample time to secure a new mortgage product.

What are the advantages of a fixed-rate mortgage?

• You are protected from any rises in interest rates during your initial fixed period
  

• You are able to budget for your monthly outgoings more effectively
  

What are the disadvantages of a fixed-rate mortgage?

• Fixed-rate mortgages are often more expensive than variable rate or tracker mortgages

• You won't be able to benefit if interest rates fall during your fixed period

• It can be more difficult to overpay on a fixed-rate mortgage without being charged for doing so, limiting the potential to pay off your mortgage sooner

• You may be hit with an early repayment charge (ERC) if you want to move to another deal