April 11, 2011
Reasons For And Against Fixed Rate Mortgages
With a fixed rate mortgage, your repayment amount is the same each month, for the duration of your mortgage deal period. The interest rate set at the start of the mortgage does not change for the fixed rate deal period, no matter what happens to the base rate. Currently, fixed rate deals are in demand despite the fact that the base rate is low, as it is likely to rise again soon. Here we will discuss some of the main benefits and drawbacks of opting for fixed rate.
In Favor Of Fixed Rate:
1) You can forget about interest rate increases. With a fixed rate mortgage, your monthly payment will be the same, no matter what happens to interest rates. There will be no need to be concerned about base rate changes during the deal period, and you will always know for the period your mortgage payments are fixed what amount to allocate for your mortgage.
2) Budget your household expenses effectively: A fixed rate mortgage enables you to budget effectively as you know what your mortgage payments will be for a predefined period of time known as the ‘fixed rate period’. The main reason fixed rate mortgages are so popular is because they are ‘fixed’. People will often accept paying slightly more, for the benefit of ‘knowing’ what they will need to pay offering them the facility to budget.
The Negatives Of Fixed Rate:
1) Additional fees, and penalties for repaying early. The security of having fixed payments comes at a price. Lenders know that you are willing to pay for this safety, and also that they may be out of pocket if rates soar. Arrangement fees and booking fees therefore tend to be high, and there are usually fees for paying off your mortgage early. In this case, you would have to pay an extra percentage of your mortgage.
2) Repayments do not change if the base rate decreases. When interest rates are on the up, fixed rate mortgages offer security and possibly even savings. If however, interest rates go below your fixed rate, then you may be paying more than you could have had you opted for a variable rate deal. Keeping an eye on the base rate and factors which may effect the base rate is important when you come to remortgage, as this will help you to decide if rates are likely to rise or fall.
If you would like professional advice to help you decide whether a fixed rate mortgage is the right choice for you, then Fixed Rate Mortgages 4 U can help.
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