Fixed Rate Mortgages

Mortgages are a multifaceted financial product. When applying for your mortgage, major controllable variables include the mortgage amount, mortgage term, product term, rate type and associated fees. These can be manipulated to suit your individual circumstances and needs. A fixed rate is a type of interest rate applied to the initial product term of the mortgage.

In a climate of rising interest rates, fixed rate mortgages are even more popular than normal. Over the last couple of years, this has been amplified by the fact interest rates have been so low with mortgage rates being at an all-time low in late 2021. Homeowners and landlords have sought cheap borrowing secured for many years helping reduce monthly mortgage payments. In this blog we’ll discuss fixed rate mortgages – exploring what they are, how they vary and when are they suitable?

To understand a fixed rate mortgage, it is important to understand how a mortgage is structured. Mortgages have an initial product term, most commonly two-year or five-year, where the interest rate is lower. After this period, they revert to a standard variable rate (SVR), determined by each individual lender. At the end of the product term, before falling onto SVR, is when you should remortgage to ensure you obtain the most competitive interest rate and product suitable for your circumstances. A fixed rate is a type of interest rate which is applied to the initial product term. Other common options include tracker and discount rates. Fixed rate mortgages are self-explanatory – the interest rate is fixed for the product term meaning there is security in the monthly mortgage payments. If interest rates rise or fall, those on those on this type of mortgage product will not be affected.

A typical decision when buying or remortgaging is whether to fix the mortgage for two or five years. These are the most common fixed products in the mortgage market with three-year products available from some lenders too. There are pros and cons of all options. Decisions should be based on personal circumstances and future plans, while considering general economic factors, specifically interest rate change. Shorter term fixed options normally have a lower interest rate and therefore lower monthly payments. Longer term fixed options provide greater security in monthly payments and many lenders allow increased borrowing.

Longer term fixed rates have become increasingly popular in the current climate. Many lenders offer competitive seven-year and ten-year fixed options. While the interest rates are higher and there are significant early repayment charges, the security in monthly payments is the big draw factor for many. With mortgage rates having been at an all-time low over the last couple of years, and interest rates now rising, more people have opted for longer term fixed rate borrowing.

Fixed rate mortgages will always be popular. More often than not, they’re the preferred option as people like to be able to budget and know what their outgoings are. If you’re looking to move home, remortgage or you have any other mortgage and life insurance queries, we’re here to help with free, professional advice.