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Benefits of Fixed Rate Mortgages.
Fixed rate mortgages are especially good for those on a tight budget because they are a simple idea to comprehend. The same monthly payment is made throughout the fixed term of the mortgage regardless of the rise or fall of the bank rate. It is easier to budget finances when a fixed amount is due each month.
It is for this reason that this type of mortgage is a good choice for first time buyers, who are usually on a tight budget or for those with families who again need to know the extent of their finances.
Around 87% of first time buyers and 70% of those moving house opted for a fixed rate mortgage in June.
Fixed rate premiums tend to be slightly higher than other products but most borrowers are willing to accept this to gain peace of mind.
Fixed mortgages can be from 6months to 25years after which they will return to an adjustable rate. At this time they can be remortgaged to another fixed rate.
The length of the fixed rate should be for as long as the borrower is comfortable with according to their budget and timescale so that early redemption fees are not payable.
Some fixed rate mortgages are offered over a 25year term with get-out clauses after a 5 – 7 years allowing them to be moved if the borrower so wants.
The fact that it is not necessary to search and keep changing products every few years is a reason many choose a fixed rate product. Most of these are portable so when a move is necessary the mortgage can be packed up and moved as well as the furniture, not incurring penalty payments.
Some products allow the mortgage to be paid off early but may have limits of between 5% and 10% extra payments per annum.
Of course like all mortgages, a fixed rate mortgage, is not suitable for everyone and personal circumstances must be taken into account.
Summary
• Repayments remain the same whatever happens to the bank rate
• Can be taken out from 6mth to 25years
• Great for those on a budget
• Peace of mind
• Good if rates are likely to rise.
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