The Ups And Downs To Fixed Rate Mortgages

For anyone wanting a mortgage nowadays finding the wood for the trees can be more than a daunting process with so many mortgage companies offering so many mortgage products. Factor in the fact that you just cannot tell the future make the whole job that little bit harder. It is for this reason that fixed rate mortgages exist. When you have a fixed rate mortgage you know just what you are going to be paying for a given period of time. There can be good points and some bad points to this type of mortgage loan within this page we will try to deal with some of them.

In times of uncertainty fixed rate mortgages tend to be the most popular type of mortgage loan. As the majority of loans for property are arranged on a 25 year basis having some sort of security over payment is considered quite beneficial. Having said that you do find mortgages exceeding 25 years, and some can be as low as only ten years.

One of the biggest pros of a fixed rate mortgage is that the interest rate remains the same throughout a predetermined time. This makes it extremely easy for consumers to budget and plan for their monthly payments. With a fixed rate mortgage, consumers will always know how much their monthly payment is going to be.


The various fixed rates and their duration is set by thee lenders and of course market conditions. The longer the fixed rate is for the higher the rate will be and conversely the shorter the fixed rate the lower the rate generally is. As a result thorough research is always very much advised to ensure you get the best deal available to you.


Another really good upside to a fixed rate loan is if you are aware rates are set to rise and stay quite high. If you get a fixed rate before they do and rates then subsequently go up you will stay at your chosen lower rate and therefore save quite a bit of money and as such over time if rates stay high you can save quite a lot.


However the opposite is also the case if you secure a fixed rate and the markets rates reduce you will be paying more than the market and as a result you will be financially worse off. With that in mind you again should ensure that you seek good independent mortgage advice as the type of people supplying it may have a better handle on what the market is or is not likely to do.


As it has been said the interest rates on fixed rate mortgages do vary from lender to lender. Generally speaking, if you are obtaining a fixed rate mortgage for say 3 years plus, you can expect to pay a slightly higher rate than the standard variable rate. It should also be noted that as the lender normally gets money for fixed rate mortgages from the money market there will be a fee for arranging the mortgage. The better the fixed rate invariably means the higher the initial fee will be.


A final bad point is what is known as early redemption penalties or ERPs. An ERP is a penalty charged to you if you redeem, that is, pay off the mortgage early or before the fixed rate is over. It is important to factor this into any decision to purchase a fixed rate because if you have plans for the future you do not want them impacting on any fixed rate you might arrange now. So be sure to decide exactly how long you want the rate for and be prepared to stick to it because failure to stick to it could cost you many thousands.


In summary it can be hard choosing the right mortgage at the best of times factor in complex rates like fixed rates and the job just gets that little bit harder. Never has there been a better time to seek independent mortgage advice just to ensure that you are not unnecessarily spending money you don't need to, but knowing the good and bad points of fixed rates should make it a bit easier.