A fixed rate mortgage is one which allows you to pay a set rate of interest for an agreed period of time. This will typically be for between one and five years, but can be much longer depending on the lender. Once the agreed period of time (or the introductory period as its sometimes known) expires you will begin paying your lenders Standard Variable Rate of interest, which will normally be much higher.
Fixed rate mortgages can be a real advantage at times of rising interest rates because if the interest rate rises above what you are currently paying on your mortgage, you'll be saving quite a bit of money in comparison to someone with a variable rate mortgage whose interest rate will reflect the market. The downside, of course, is that if interest rates fall below your fixed rate you won't be able to take advantage of them. You'll be paying more than someone with a variable rate mortgage.
Fixed rate mortgages may appeal to you if you are a financially cautious person. With a fixed rate mortgage, if interest rates rise by 1% and fall by 1% during your agreed set period, your repayments will more or less balance out. In the case of drastic interest rate increases such as those of the late 1980's you will be considerably better off.
Favourites (IE)
Print This
Email This
