Should I fix my mortgage rate?
Interest rates were already at an all-time low and were cut again at the start of this month* from 0.5% to 0.25%. Being one of the biggest financial decisions a person will make in their lifetime, it’s important that we know how to get the best deals from banks and lenders.
Our advisors often get questions from homebuyers about whether you should take a two-year fixed mortgage, look for a longer fixed-rate or accept a variable rate mortgage.
What’s the difference between a fixed and variable mortgage?
With a fixed-rate you have peace-of-mind that you know exactly what your mortgage will cost and that your payments won't rise during the fixed term, regardless of what happens to interest rates.
Starting rates are generally higher than on variable products and if interest rates fall your payments won't drop, but you can budget safe in the knowledge there'll be no surprises for a set period. Advisers will sometimes suggest buyers should fix in order to be safe in the knowledge of exactly what payments are needed each month.
With a variable rate mortgage your payments can fluctuate. This type of deal could save you money, but you are gambling that interest rates won't rise. If affording your repayments if this happens is an issue, a variable rate mortgage possibly isn't advisable. The options with this include: tracker, standard variable and discount rate, and you can potentially get a capped deal.
However, if your mortgage repayments are part of a stretched household budget it could make sense to choose a fixed rate as you can work to a set budget over a pre-established period, meaning you can relax and not worry about variations in interest rates.
How long can you fix a mortgage for?
Fixed periods vary from two years up to as many as 10 years, for example. If you know that you are likely to stay somewhere for a long time, then you have the option to stretch it out. Do bear in mind that lower rates tend to be found on shorter-term mortgage agreements.
Also be sure to check what early repayment charges are because fixed rates usually carry these and could affect flexibility on making overpayments on the mortgage. If you want the lowest interest rate then try to put down the highest deposit possible, because the two usually correlate.
Talk to an expert at Preston Baker today for free initial mortgage advice.
Your home may be repossessed if you do not keep up repayments on your mortgage.
We will charge a broker fee of between £199 and £399, payable on application. The amount we will charge is dependent on the amount of research and administration that is required.
Preston Baker Financial Services Ltd is an Appointed Representative of First Complete Ltd
*BBC News 04/08/16
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