Fixed rate mortgages

A fixed rate mortgage provides you with the option to fix your payments for a set period, typically between one and three years although longer term fixed rates are available (see below).

During the fixed rate period of a fixed rate mortgage you will make the same monthly payments whether the lender’s interest rates go up or down.

At present it is generally the case that the shorter the fixed term, the lower the rate you will pay.

Advantages of a fixed rate mortgage

• A fixed rate mortgage offers you the security of knowing exactly how much you will be repaying during the fixed rate period, which makes budgeting easier
• You have the security of knowing that if interest rates rise during the fixed rate period, your monthly repayments won't rise

Drawbacks of a fixed rate mortgage

• If mortgage rates fall then your fixed rate may prove to be more expensive than a variable rate
• Early repayment charges are likely to apply for at least the term of the fixed period
• In a few cases there may be an “overhanging” early repayment charge. This means that an early repayment charge applies for a longer period than the fixed rate period
• There is generally an arrangement or booking fee payable for a fixed rate mortgage
• After the fixed rate period ends, you will normally have to pay the lender’s standard variable rate - so there may be a large increase in your monthly repayments, particularly if interest rates have risen during the fixed rate period

Longer term fixed rate mortgage

A longer term fixed rate mortgage provides you with the option to fix your payments for a significant period, for example for five years, ten years or even on occasion 25 years.

As with a shorter term fixed rate mortgage, you will make the same monthly payments during the fixed period, whether the lender’s interest rates go up or down.

Advantages of a longer term fixed rate mortgage

• In addition to the advantages of a fixed rate mortgage, a longer term fixed rate also means you won’t have to remortgage every two or three years
• Longer term fixed rates may appeal to people who wish to know how much they will pay for their mortgage over the long term, particularly if their payments are a significant percentage of their monthly budget

Drawbacks of a longer term fixed rate mortgage

• In addition to the drawbacks of a fixed rate mortgage you should bear in mind that longer term fixed rate mortgages often have significant early repayment charges during the fixed period
• A change in your circumstances may mean that the mortgage needs to be paid off during the fixed period resulting in an early repayment charge. The longer the fixed term the more difficult it can be to predict if your circumstances may change
• If interest rates fall significantly during the term of the longer term fixed rate mortgage you could be paying a rate that is significantly higher than ‘current rates’