Fixed rate mortgages explained
Struggling to understand how fixed rate mortgages work? We have compiled a short overview to help you understand everything you need to know.
Fixed rate mortgage deals
Fixed rate mortgages work by fixing the interest rate for a certain period of time. Typically, the fixed interest is higher depending on the duration of your fixed rate mortgage deal. So, you can either opt for cheaper payments or the security that comes with a longer term.
If you choose to go with a 2-year fixed rate at the lowest interest rate, then your payments will likely be the smallest. However, after those 2 years are up, you will automatically be switched onto a standard variable rate (STR), which is usually a lot higher. At this point you can of course remortgage and look for another fixed rate mortgage. But, there is no guarantee that the interest rates would not have risen.
If you were to choose a longer term such as a 5-year fix, then you have the security of knowing that your mortgage repayments are going to be the same every month for the next 5 years. This could be a great option for those who like need to budget and keep on top of their monthly outgoings.
The downside is that almost all fixed rate mortgages will have an early repayment charge (ERC) attached to them. This is a fee that you will have to pay if you sell your home within the fixed period. The amount you will have to pay varies for every lender, but it will normally be a percentage of the loan and decrease in accordance with the amount of years left on the scheme term.