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Mortgages
> Fixed Rate Mortgage - UK Guide
In a nutshell
A mortgage that comes with a fixed rate deal attached for a period of time.
Best Mortgage For
First time buyers and any consumer looking for the security of knowing exactly how much their monthly payments will be for a set period of time.
Mortgage Type
This type of deal is generally based on a variable or tracker mortgage which has a fixed rate deal tacked on top for a period of time. This is generally up to five years but some deals can go as far as ten years. Once the deal is finished the mortgage will revert to the base type unless another deal can be negotiated. You can take out either repayment or interest-only mortgages with these types of deals.
Typical Amount to borrow
Standard lenders will let you borrow between 3-5 times your own salary or between 2.5-3 times a joint salary package with a partner. Some lenders offer more flexible borrowing options of up to 5 times your salary. You can borrow up to 100% of your property value with some standard lenders and some specialists will lend you 100%+.
Deposit
Nothing with a 100% deal. Standard deposit rates start at around 5%.
Advantages
Fixed rate mortgages give you the security of knowing exactly where you stand with your mortgage payments. They are probably the safest option of all special offer deals. So, for example, if you take out a fixed rate deal of 5% for two years you'll know that your interest rate will stay at 5% for that period. This can make it much easier to budget - especially useful for first time buyers or for other mortgage buyers that need to know where they stand financially for a period of time.
What to look out for
The major problem with a fixed rate deal is that it can all start to look more expensive than it should if interest rates go down. You do have the security of knowing that your payments won't rise if rates go up, but you won't see any benefits if they go down. You'll still be paying your fixed rates for the duration of your agreed term and you won't always also get the best rates on offer with fixed rate deals. Some lenders will try and tie you into this kind of deal so you also need to be aware of penalty clauses and redemption fees if you do decide to change deal down the line. Your fixed rate deal may have looked great when you bought it - especially if interest rates were high - but if they drop a lot then you'll be painfully aware that you're paying more than you have to. Taking out a fixed rate deal that is attached to a tracker mortgage can help you play the market a little better.
Alternatives
Take a look at other special offer deals such as capped rates and discounted rates to see how they compare. Taking out a fixed rate deal that is attached to a tracker mortgage may help you play the market a little better.
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