Fixed rate mortgage guide
We explain the potential benefits of a fixed rate mortgage and what to bear in mind before getting one.
What is a fixed rate mortgage?
A fixed rate mortgage allows you to keep your mortgage at a set interest rate for an agreed time with your lender when you take out the loan.
This means that for the specified period, you’ll know exactly how much you have to pay each month and won’t need to consider the implications of adverse interest rate changes.
However, you won’t benefit if interest rates go down as your monthly repayments will stay the same regardless.
How long should I fix my mortgage for?
It’s really important to get a mortgage that suits both your financial and personal circumstances.
So that means making sure that your fixed rate is set for a suitable amount of time depending on your potential long term plans.
There are many fixed rate mortgages to choose from:
And there's a handful of 3, 8 and 15 year fixed mortgages available too.
Here are some pointers to help you get it right.
What’s an initial period?
Some people get confused between a ‘mortgage term’ and an ‘initial period’.
A mortgage term is the entire length of your mortgage, for example 25 years.
An initial period refers to the length of your mortgage deal, such as 2 years.
What's the right fix for me?
If you do decide on a fixed rate mortgage then the rate that you pay can be fixed for 2, 3, 5, or 10 years, depending on the deal you choose.
In general, the longer the fixed rate period, the higher the interest rate you’ll be asked to pay.
This means that you'll repay more if you choose to fix your rate for longer.
If you plan to stay in your home for a short amount of time before selling it, or you’re expecting changes to your financial situation, a short-term deal for 2 or 3 years may suit you. Shorter deals tend to have the lowest total cost over the initial period (known as the true cost).
If you think you’re going to stay in your home for a longer period, and aren’t expecting changes to your circumstances, a 5 year deal may be worth considering.
You’ll get extra long security with a 10-year fixed mortgage. But while you’ll be protected from potential interest rate rises, you could also miss out on lower mortgage repayments if interest rates go down.
If your circumstances change, and you want to come out of the deal before it ends, you could face high charges.
What happens after a fixed period?
Looking into your options at least 3 months before the end of this period should give you plenty of time to find a more suitable deal before your current deal expires.
Should I get some advice?
Before deciding how long to fix your mortgage deal for, it’s a really good idea to have a frank conversation with a mortgage broker.
Things to discuss include:
how long you plan to stay in your home
if you plan to buy a cheaper or more expensive home when you sell up
any future pay rises, bonuses or inheritances
plans to marry, start a family or buy with a partner
Having a clear chat with a mortgage adviser/broker will help decide the length of the initial period that’s right for you.
It’s really important to get it right as many deals have early repayment charges if you later decide to pay off your mortgage early.
Fixed rate mortgage deals
The following deals are based on securing a mortgage of £181,600 on a £227,000 property (that's 80% loan-to-value) over a 25 year term.
We’ve searched for the most competitive deals according to true-cost. This includes capital and interest repayments, fees, and incentives due over the initial period of the deal, and is a more effective way of comparing deals than looking for the lowest interest rate deal.
2 year fixed deal (first-time buyer)
True cost over initial period
Based on securing a mortgage of £181,600 over a 25 year term. Includes £111 upfront fee. 2.69% initial rate reverts to 4.99% SVR after initial 25 month period, costing £1,042.90 per month for 275 months. Total amount payable is £307,777.75 including interest and fees. That's a 4.70% APRC. True cost based on a 24 month period. This deal was last updated on 1st March 2019.
2 year fixed deal (remortgage)
True cost over initial period
Based on securing a mortgage of £181,600 over a 25 year term. Includes £225 upfront fee. 2.08% initial rate reverts to 4.49% SVR after initial 26 month period, costing £989.00 per month for 274 months. Total amount payable is £291,508.06 including interest and fees. That's a 4.10% APRC. True cost based on a 24 month period. This deal is semi-exclusive to Trussle. This deal was last updated on 1st March 2019.
Advantages of fixed rate mortgages
The main benefit of choosing a fixed rate mortgage is the stability it provides in terms of financial planning.
Knowing that your monthly mortgage payments will remain the same is one of the major benefits of a fixed rate mortgage.
It'll allow you to organise your finances efficiently and prevent any nasty surprises if interest rate fluctuations don't work in your favour.
With a fixed rate you'll
have a clearer view of future financial commitments
be safe from fluctuating interest rates set by the Bank of England
know exactly what you need to pay every month towards your mortgage
If you secure a fixed rate deal then have to move home earlier than expected, most lenders will allow you to port your mortgage to the new property and will assess affordability if you require an additional 'top up' to your loan amount.
Disadvantages of fixed rate mortgages
As outlined, there are clear benefits to choosing a fixed rate mortgage, thanks to the additional financial stability and security it can offer over a specific period.
However, there are also some downsides...
If interest rates do fall during your fixed rate period, you won’t get the benefit of the decrease - your repayments will stay the same rather than going down.
Once you decide on the fixed term of your loan, you won’t be able to remortgage even if you spot a better deal elsewhere. You could pay the Early Repayment Charge but this could outweigh the potential savings of switching.
You may end up paying more over the period of your fixed rate mortgage than you would with a comparable variable rate loan if interest rates are high.
Fixed rate vs. variable rate
A steady rate
Arguably a benefit of fixed rates is that you know exactly what the rate and repayment amount will be each month throughout the agreed term.
As you know what your payments will be, you can more easily stick to a budget if you need to.
Higher exit fee
Fixed rate mortgages can have higher exit fees, particularly throughout the fixed period, so it might not be so appealing to switch mortgages.
It's not forever
At the end of the fixed rate period you’ll be transferred to a standard variable rate which tends to be higher and more costly.
Unlike a fixed rate, a variable rate can fluctuate - it could end up a lot more expensive, but it could also go the other way.
Risk and reward
As you’d be putting yourself in a more risky position in terms your variable rate’s unpredictability, lenders might initially offer a lower rate.
No early repayment fees
With a variable rate there usually aren’t early repayment fees. So you can make early repayments with more peace of mind.
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