Fixed Rate Mortgage

The Deal:

Your lender agrees a set rate of interest for a specified period of time. Irrespective of movements in the interest rate your monthly payments will not change. Generally anything between 1 and 25 year fixed rates are available. Commonly a lender will require a non-refundable up front booking fee to be paid on application to reserve the mortgage. Further fees such as arrangement fees are also frequently experienced with this type of rate.

Advantages:

  • Knowing the exact monthly cost of your loan for a set period
  • The rate will also provide a buffer against increases in the interest rates

Disadvantages:

  • Unexpected increases in payments at term end
  • Possibility of losing out should interest rates fall below your agreed rate
  • Possibly tied in to variable rate with same lender for various periods following the fixed rate term end
  • Redemption penalties can prevent restructuring of your mortgage and associated finances

Suitability:

A fixed rate mortgage is the most suitable option in a number of circumstances the most common being those identified below:

  • Larger borrowings
  • Individuals on tight budgets expecting wage increases over the first few years of the mortgage
  • First time buyers looking for security during the first few years of setting up home
  • Borrowers who anticipate rising interest rates