Guide to Fix Rate Mortgages

by Mark Johnston

A fixed rate mortgage helps borrowers for a specific amount of time, when they are maybe trying to cope with financial problems, increasing bills, reduced working hours, the increasing inflation costs and the bank of England increasing its base rate sooner rather than later. Everyone has a reason!A fixed rate mortgage is when the rate of interest is set irrespective of changes in the Bank of England base rate. This fixed rate is over a specified length of time usually two, three or five years although the fixed rate can be for twenty or even twenty five years. This gives borrowers the protection and security of knowing that the same amount of money is required each month for the length of the fixed rate term. On completion of this fixed term, the mortgage will then revert to the lenders standard variable rate this is (the mortgage lenders rate of interest on which it bases all its mortgage products on) I will try to explain a little clearer later.

Knowing your mortgage payment will be safeguarded against increases in the lenders standard variable rate for the fixed rate period.
Financial budgeting made easier as you will know exactly what you owe each month, no surprises!!! Enjoy low interest rate in the first few years of your mortgage.

Interest rates fluctuate and if the rate increases that is no problem but there always has to be a but! If the interest rate goes down other lenders could be taking advantage of low payments but yours will still be the same.
Do not assume you can simply walk away from the deal if it no longer suits you or even if your circumstances change. Fixed rate mortgages incorporate “early redemption penalties” these penalties would apply if you want to leave prior to the end of your fixed term. Usually these penalties are quite expensive. If you would like to pay off your mortgage in full during the fixed rate period you could face a hefty early redemption fee that could go into the thousands. This is one that you should be aware of and try to avoid if at all possible. This is usually the cheaper fixed rate mortgages but not always may charge a redemption fees which extend beyond your fixed rate period, or you could be stuck on your on
your mortgage lenders uncompetitive standard rate variable this penalty is also known as “overhanging redemption penalty or tie in period”. When you compare fixed rate mortgages this factor should be considered. You may also be required to pay an application fee when arranging your fixed rate mortgage.

Don’t forget, always ask as many questions as you can. Always read the small print. If you do not understand what they are talking about ask them to clarify several times if you need to. Take lists of questions. Make sure every thing is clear Check what fees might apply if you sell during the fixed rate period. Ask what fees may apply if you needed to re mortgage.
Don’t let them rush you this is a big decision and you need to get it right.
Shop around before committing yourself

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