With a fixed-rate mortgage, your interest rate remains the same for an initial period, often between two to five years, but can occasionally be for longer. Up until recently, the low Bank of England base rate has meant that fixed-rate mortgages were extremely popular. After the last few years necessitated rate hikes, is a fixed-rate deal still the best one for you?
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Fixed-rate mortgages pros and cons
Fixed-rate mortgages remain popular because there are many options for mortgages that appeal to homebuyers. Even though many deals are two to five years, there are longer mortgage terms available from ten to 25-year fixes. If you secured a longer term mortgage within the last few years, you can be secure in the fact that you won’t need to worry about any additional base rate increases, as your deal will remain locked in. As you can imagine, this kind of stability can be an advantage during a time when the interest rate seems to be consistently on the rise, but when they’re low and your locked-in rate is higher, it can feel a bit stifling.
Here are some more advantages and disadvantages for you to consider:
- Stability from consistent payments – Having a fixed repayment amount for your mortgage each month will help you budget and plan, something that is crucial especially during a cost of living crisis.
- Protected against increasing payments – Since raising the base rate is seen as the best way to reduce inflation, chances are until the economy has stabilised, the rate will always be subject to change. When you’re protected against rate hikes, your payments will always stay the same.
- No way of knowing which way the rate will go – If you make the leap to a fixed mortgage rate and the base rate goes down, you might be kicking yourself since you’ll end up paying more than you might have been paying if your rate tracked the base rate. But, this isn’t something you can guarantee, so you have to decide if it’s worth the gamble.
- You have to play the waiting game – If you are locked into a rate, you will need to wait until your term ends to take advantage of lower rates. Unfortunately, your initial period might be up during a time of high interest rates and you’ll be stuck with higher interest rates than you might have already been paying.
- Be prepared to pay big for flexibility – If it seems like it’s worth it to switch your mortgage deal while your current one is still on, be prepared to pay fees that could cost thousands of pounds to get a new deal.
You can make any mortgage deal work with careful planning and budgeting, but fixing your mortgage rate means more financial stability during a time where that is hard to come by. Ultimately, the decision is up to you, but that doesn’t mean you have to go it alone.
In the market for a mortgage?
As you can see, there are both advantages and disadvantages to securing a fixed-rate mortgage. A fixed-rate can help ease financial concerns during times of financial uncertainty and high interest rates, but it could also limit you from taking advantage of lower rates when they drop. If you’re in the market for a new mortgage or are wondering what your remortgaging options are in this economy, contact the experts at Dental and Medical Financial Services today.