When you come across different types of anything it can often be a bewildering process trying to decide which to choose, whether it be clothes, cars, holiday destinations or whatever. The same applies to mortgages. So here we will concentrate on just one of the options, explain what it is, the way it works, and let you decide whether it is suitable for you. No doubt you have heard of a fixed rate mortgage and it is exactly what you might expect from that description.
A fixed rate mortgage is a means of guaranteeing your mortgage payment over a set period. So is it something you should consider? Well, more often than not you will find that it is the right choice in the following circumstances: you think that interest rates are low; you can afford the payment for the home you want; you need to budget for, and predict, monthly payments; you will keep your home for a relatively long period of time.
You see, during the fixed rate period your payment will remain the same, regardless of what variable interest rates might be doing. That is a good thing if the latter are going up, not so good if they are going down, but at least you have the assurance of knowing exactly what you will be paying and can budget accordingly. If you have any doubts the best course of action is to seek the advice of an established and respected lender.
If you then decide to go ahead you need to spend considerable time shopping around to find the best fixed rate. Ask for several quotes, maybe consult people you know who have travelled down that particular road and see if they can point you in the direction of a reputable and trustworthy lender with whom they have had dealings. It will be time well spent.
The main thing with a fixed rate mortgage is that it provides you with peace of mind. You are not wondering from month to month whether interest rates are going to rise or fall. Some people have fallen into the trap of taking out large mortgages in relation to their incomes when interest rates were low and have then found themselves struggling when the interest rates started to rise – and in the worst case scenario that can result in homes being repossessed. So a fixed rate mortgage is definitely a safer option.
If you feel you could not handle sudden interest rate rises then a fixed rate deal is probably best for you. You have also to decide on the term of the agreement, the average for most fixed rate mortgages being two years, but there are five year deals available. Not many lenders offer more than that, unlike in other parts of Europe and in America, where you can get fixed deals over a much longer period. What you should seek to do is try to fix the rate for as long as possible.