Fixed Rate Mortgage
If you are one of those people who like to know where there money
is going to go and when, then a fixed rate mortgage could well
be the ideal mortgage for you. A fixed rate mortgage provides
solid payments for a predetermined period. Since you are protected
from rising interest rates, you can set your budget with confidence.
Fixed rates bring peace of mind and security, which some people
find priceless. When you are looking at a loan the size of a mortgage,
knowing the exact amount going out of your bank account each month
can be reassuring.
 
Fixed rates are available for between six months to twenty-five
years, with two to five years being the most popular. If you fix
for five years, for example, and the interest rates rise beyond
the level you have fixed at in that time, you have made a shrewd
investment.
On the other hand, should rates fall during the fixed period,
you will have lost out. That is the risk you take and the price
you pay for fixed rate mortgages, but you do get peace of mind
rolled in with the price. You could look at fixed rate mortgages
as a type of insurance. We pay premiums to insure our property
against fire and theft. Why not pay a fixed rate to insure against
rising general interest rates?
If the lender offers a fixed rate or I discounted variable rate
mortgage, it may charge a penalty if you decide to cash in on
your loan before the fixed rate or discounted loan has run out.
Beware – this penalty can run to thousands of pounds.
Watch out, as some lenders charge a redemption penalty, even after
the fixed rate or discounted rate period has run out. These are
known as ‘overhanging’ redemption penalties, because
they overhang your deal.
The mortgage market in general has become a very topical point
of conversation in recent years; with the constant reports of
changes in the housing market, and the lack of security for new,
first time buyers, arranging a mortgage has gained a new importance.
Owning your own property is for the most part a very sound financial
investment, although it also constitutes a major financial commitment,
which should in no way be rushed into. Taking the time to research
and understand the terms and conditions of a mortgage scheme is
vital for any individual who is looking to arrange a mortgage
loan.
Competition within the mortgage market has seen more and more
companies offering more and more different types of mortgage scheme,
hoping to entice the customers away from rival mortgage lenders
and towards their offers. To a certain extent, a mortgage market
that is close to flooded could be seen to greatly benefit the
customer, seeing as they can take advantage of more competitive
interest rates and more flexible contracts; unfortunately, in
many ways it could be viewed to have a rather negative effect
for the customers. Such diverse mortgage schemes, and the huge
amount of companies can understandably prove incredibly confusing
and off-putting. However, the one option that could better this
situation is of course the tried and tested ‘fixed rate’
mortgage option; this is oftentimes addressed as the ‘traditional’
mortgage contract, and is therefore widely available.
Similar to all other mortgage schemes, a fixed rate mortgage
follows the principle of ‘equity of redemption’, in
that the mortgage lender loans a fixed amount to the customer,
and it is only upon the full repayment of that amount, inclusive
of interest charges, that the mortgage lender will surrender all
claims to the property. With a fixed rate mortgage, the customer
does acquire a certain degree of financial stability, which can
be lost with other types of mortgage, since from the very outset,
they are to pay the mortgage lender an agreed amount of money
for their monthly repayment, and as the name denotes, this is
a ‘fixed’ rate, and will not fluctuate.
The obvious advantage of this, is that the customer is in a position
to plan ahead (on a financial level) and budget more effectively
for these monthly repayments. This should avoid any unwelcome
surprises, finding that your interest and APR rates have risen
considerably from one month to the next. However, there is of
course much variation between the schemes on offer. It is common
practice for mortgage lenders to apply these ‘fixed’
rates only for a limited period. Therefore, if the customer fails
to properly investigate and understand the terms and conditions
of their mortgage scheme, they could find themselves susceptible
to hefty changes in their rate amounts later down the line. There
are also some restrictions placed on fixed rate mortgages, such
as the inability to make early or late repayments, which is unappealing
to some customers. Nonetheless, the advantages of a fixed rate
mortgage are undeniable. It places the customer is the envious
position of financial stability- they are much less likely to
be overwhelmed by changes in interest rates, and have to deal
with increases in repayments, provided of course that they take
the route of researching and planning the options available, before
committing to any contract.
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