Fixed Rate Loans

In a Nutshell...

Repayments stay the same for the period of the initial deal, regardless of what happens to the base rate.

• They are good for first-time buyers and if you think interest rates will go up. However, the interest rates aren't always so competitive.
• Watch for high early redemption charges if you want to change mortgage before the period of the deal is up, and make sure you aren't locked into a high standard variable rate when the fixed period ends.

What is it?

If simple and reliable is your thing, then this could be the type of mortgage for you. No matter what happens to the base rate, with a fixed rate mortgage the amount you pay every month stays the same for the full length of the mortgage.

You are taking a chance here depending on what you think will happen to interest rates in the future. If rates go up, you can sit back happy as your rates are lower than standard variable rate. But if rates go down, you won't get the benefit of lower monthly repayments. Even if interest rates remain fairly steady, you're still likely to pay slightly more as fixed rates tend to be offered at at a higher initial rate than variable ones.

Costs and charges

• Costs: The cost of a fixed rate loan depends on a number of factors, including the length of the fixed period, and the amount you want to borrow as a percentage of the value of your home. In general, the higher the loan-to-value, the higher the rate you'll pay.
• Fixed period: The initial fixed period can vary from 6 months to the full length of the mortgage. In practice, most fixed rate loans on the market are for 2 to 3 years.
• Early redemption charge: One thing to consider when choosing the length of the initial fixed period is whether the lender will charge an early redemption charge if you decide to change your mortgage before the end of the fixed period.
• Tie-ins: Similarly, look at whether you'll be tied in after the initial fixed period ends - this is especially true for low initial rates. You could end up reverting to the lender's standard variable rate for a while, which could be much higher than what you were paying.

Fixed rate mortgages aren't always the cheapest on the market, but you always know what your repayments will be. If interest rates are low, they can be an attractive option.

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