Fixed Rate - Is The Best Choice When Remortgaging?
- By Howard Ogollegos
- Published 09/20/2011
- Real Estate
- Unrated
If you are looking to remortgage your home then one of the main choices you will have to make regards the type of mortgage deal. There are two main types of mortgage product; variable or tracker rates and fixed rates.
As the economy in the UK starts to recover after the global financial crisis, interest rates look set to rise. Ensuring you fix your mortgage payments to protect yourself against such rate rises may therefore seem like the obvious answer. However, there are other factors you may need to take into account and so fixed rates may not necessarily be the answer in every situation. Our guide looks at the reasons why you may or may not want to consider a fixed rate remortgage.
In the UK, between 50% and 75% or mortgages taken out are done so on fixed rates. Furthermore, when interest rates are predicted to rise, as with the current climate, fixed rates become even more popular.
The most common reason that borrowers choose a fixed rate mortgage deal is to give them the peace of mind of fixed repayments. When you take out a fixed rate mortgage you are effectively guaranteeing your mortgage payments for a period of, typically, between two and five years. Whatever happens to the general economy or to the Base rate, you will know exactly what your mortgage payments will be.
For instance, if you agreed a mortgage loan at five per cent for five years, and the base rate set by the Bank of England doubled during that time, your mortgage would remain unaffected. The rate on your loan would not change, so the smart borrowers gamble that rates are going to rise.
On the other hand, if you fix your mortgage, it can
result in substantially higher initial instalments. With the Bank of England Base rate at just 0.5 per cent, many property owners who have a 'standard variable rate' mortgage are currently paying just over 3 per cent interest on their loans. If you are going to gamble on the future and expect mortgages to rise of seven or eight per cent, it makes sense to fix your loans at five per cent, but initially it can prove to be expensive. Fixing a mortgage for five years at around five per cent would lead to a steep initial increase in repayments.
For example, those on a standard variable rate may only be paying 3%, and in a 2 year period, they may never be paying more than 5%, whereas you may be fixed at 6% for that same time period. Obviously this is a good reason to speak to a financial adviser or mortgage broker as they will have good knowledge of the industry and can advise accordingly.
Fixed rate mortgages often also have early repayment charges, which means that if you redeem the mortgage within the fixed period, you will have to pay charges to do so. Of course, this is only significant if you will be selling or remortgaging within the fixed rate period.
Though there are many high street lenders who will allow you to move your fixed rate from your existing lender to them if you sell and buy simultaneously you could still face a large penalty if you manage to repay your mortgage early. There are many discounted and tracker mortgage products which are exempt from 'early repayment charges' allowing them to be far more flexible and therefore affordable.
It is quite clear that the demand for fixed rate mortgage products will rise steeply over the coming months as the Bank of England have confirmed that they expect the base rate to increase in the final quarter of 2011.
As the economy in the UK starts to recover after the global financial crisis, interest rates look set to rise. Ensuring you fix your mortgage payments to protect yourself against such rate rises may therefore seem like the obvious answer. However, there are other factors you may need to take into account and so fixed rates may not necessarily be the answer in every situation. Our guide looks at the reasons why you may or may not want to consider a fixed rate remortgage.
In the UK, between 50% and 75% or mortgages taken out are done so on fixed rates. Furthermore, when interest rates are predicted to rise, as with the current climate, fixed rates become even more popular.
The most common reason that borrowers choose a fixed rate mortgage deal is to give them the peace of mind of fixed repayments. When you take out a fixed rate mortgage you are effectively guaranteeing your mortgage payments for a period of, typically, between two and five years. Whatever happens to the general economy or to the Base rate, you will know exactly what your mortgage payments will be.
For instance, if you agreed a mortgage loan at five per cent for five years, and the base rate set by the Bank of England doubled during that time, your mortgage would remain unaffected. The rate on your loan would not change, so the smart borrowers gamble that rates are going to rise.
On the other hand, if you fix your mortgage, it can
For example, those on a standard variable rate may only be paying 3%, and in a 2 year period, they may never be paying more than 5%, whereas you may be fixed at 6% for that same time period. Obviously this is a good reason to speak to a financial adviser or mortgage broker as they will have good knowledge of the industry and can advise accordingly.
Fixed rate mortgages often also have early repayment charges, which means that if you redeem the mortgage within the fixed period, you will have to pay charges to do so. Of course, this is only significant if you will be selling or remortgaging within the fixed rate period.
Though there are many high street lenders who will allow you to move your fixed rate from your existing lender to them if you sell and buy simultaneously you could still face a large penalty if you manage to repay your mortgage early. There are many discounted and tracker mortgage products which are exempt from 'early repayment charges' allowing them to be far more flexible and therefore affordable.
It is quite clear that the demand for fixed rate mortgage products will rise steeply over the coming months as the Bank of England have confirmed that they expect the base rate to increase in the final quarter of 2011.
Howard Ogollegos
Howard O'Gollegos writes for JustCommercialMortgages.com the UK's No.1 site for the latest commercial mortgage rates and commercial property finance news.
View all articles by Howard Ogollegos