Fixed Rates
The Basics
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
The fixed rate provides the security of 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.
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