Choosing a Fixed-Rate Mortgage for your New Home

There are various mortgage types in the UK but choosing which is best for you is a very specific decision. Research is essential, which is why we are here to break down what’s available so that you can determine the best choice for your financial situation. This week, we shall begin by explaining how a fixed-rate mortgage works and whether it is the best decision for you.

What is a fixed-rate mortgage?

A fixed-rate mortgage comes with a guaranteed interest rate that will stay the same for the entire period, regardless of whether the interest rate changes. This means you will know exactly how much you must repay each month for a set period of time, making it a popular choice for first time buyers.

The period can last anywhere between 1 and 10 years, but homeowners tend to choose two or five-year deals. One-year fixed mortgages are much less common and tend to only be available for those with certain requirements.

Usually, the longer the length of the fixed-rate deal, the higher the interest rate. This is because the mortgage lender will find it difficult to predict the market over a long period of time. Therefore, you essentially pay for the security of knowing your rate won’t increase.

After the fixed period ends, you will be moved onto your lender’s standard variable rate (SVR) mortgage.

What happens when the fixed period ends?

When your fixed period ends, you’ll be moved on to your lender’s standard variable rate (SVR) mortgage. Each lender sets its own SVR and they are free to change this by any amount at any time, which means you may end up spending a lot more money than first thought. Some may choose to remortgage before being transferred to their lender’s SVR as they could find a better deal by doing so. However, be sure to shop around before making this decision.

Pros

  • During the deal period, there will be no change in your interest rate, regardless of what you see happening on the wider market.
  • This is an ideal option for those who are on a tight budget and would like the stability and assurance of a fixed monthly payment.
  • When interest rates are low, fixed rate mortgages can be quite cheap.

Cons

  • If interest rates in the mortgage market go down, you may find yourself paying more than you would if you chose a variable-rate mortgage deal.
  • If you want to get out early, you with often find yourself facing high penalty fees. This means that remortgaging to a cheaper deal is more expensive than it is truly worth. This is certainly the case once you factor in arrangement fees, valuation and solicitor fees.
  • If you intend to move within a few years, you will pay early repayment charges. Transferring your mortgage is sometimes an option, but this may end up costing you more than if you were to find a completely new deal.

Finding the perfect property with the perfect mortgage

While you are looking for your ideal mortgage, you will also be looking for the perfect home. If you are in search of a property in the Heaton’s but you don’t know where to begin your search, Joule’s Estate Agents can help. We can help you find the perfect home in the area, so get in touch to learn more.