Fixed
Interest Rate Mortgage
A fixed rate mortgage allows you to repay interest at a fixed rate,
irrespective of the BOE's base rate fluctuations. In other words
you your monthly repayments will remain the same every month for
a time period agreed between you and your lender (usually between
1 and 25 years). Once this period ends your mortgage will be transferred
to a standard variable rate mortgage.
Usually with a scheme like this, where there is a fixed period
involved, there is a redemption penalty charged for leaving the
mortgage before the fixed rate term has ended. You may often find
that this period continues after the fixed rate period finishes.
This means you could find yourself tied into the mortgage for several
years after the fixed rate period has ended. If the lenders SVR
is high you are stuck with it, unless you pay the overhanging redemption
penalty in order to leave the mortgage.
This is why the lenders SVR is often the most important factor
to consider when choosing a mortgage deal. You may have a low fixed
rate for a number of years, but if you are tied in for several years
after the fixed rate has ended, you might find yourself paying a
high SVR and losing all that you gained.
A fixed rate mortgage is most suitable in certain situations only.
If the BOE's base rate is fluctuated unpredictably a fixed rate
mortgage might be a good one to go for because your payments will
remain the same so you can budget more easily. At the same time
if the BOE's base rate remains consistently lower than your fixed
rate then you would stand to lose a lot of money unless you could
come to an agreement with your lender.
Another disadvantage associated with a fixed rate mortgages is that
a lender might require a non-refundable up front booking fee to
be paid on application to reserve the mortgage. Arrangement fees
are also frequently experienced with this type of rate.
|
