The Pros And Cons Of Fixed Rate Mortgages
Posted at by ifydcat on category FinanceWith 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) Interest rates will not affect you. Opting for a fixed rate mortgage cuts out the worry of always keeping an eye on base rates. For the lifetime of the mortgage deal, your payment each month will not alter, no matter what happens to the Bank of England base interest rate.
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.
Reasons Against:
1) Higher fees and charges for paying off the mortgage. As mentioned, fixed rate mortgages are usually more expensive: they typically have high arrangement fees, booking fees and costly penalties if you want to pay off the balance early. This means that switching mortgages to make the most of falling interest rates may not be worthwhile. You need to decide if these are factors that might affect you, or if the benefits of a fixed rate will outweigh them.
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 are trying to decide whether fixed rate mortgages are the right choice for you then Fixed Rate Mortgages 4 U can help.
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