Fixed rate mortgages, in the United Kingdom, are mortgages in which the interest rate remains the same from the moment of the signing of the agreement to its fulfilment, regardless of market fluctuations. The advantage of fixed rate mortgages is that when interest rates rise the fixed interest rate of the original mortgage agreement remains the same.
The down side to fixed rate mortgages is that when interest rates go below the fixed rate of a mortgage you as the borrower can’t take advantage of the lower rate. Nonetheless, low fixed rate mortgages are often the most sensible way to go for people to go who are on fixed or low income. Additionally, some people use low fixed rate mortgages to re-mortgage existing mortgages so they can take advantage of lower interest rates and save a lot of money in interest.
Things to Think About in Taking a Low Fixed Rate Mortgage
1. Length of mortgage
Low fixed rate mortgages over a term of one to five years are the most common and can generally be obtained from lenders specializing in low rate mortgages. However, some lenders are now even offering ten to twenty year low fixed rate mortgages. All allow the borrower to plan a budget with consistency because the rates never change over the life of the mortgage agreement. The drawback of the longer terms is that borrowers can’t take advantage of low interest rates in the lending markets without it possibly costing more money than re-mortgaging might gain.
2. Penalties
There are, with most lenders, penalties for leaving a low fixed rate mortgage agreement to take advantage of lower interest rates elsewhere. Sometimes those fees will make a re-mortgaging strategy not worthwhile, if the borrower is looking to save money. Before committing yourself to a re-mortgage agreement it is a good idea to consult with a mortgage advisor to help you calculate penalty fees against future gains.
3. Converting fees
Just as there are fees for exiting an existing mortgage there often are converting fees charged on the low fixed rate re-mortgage. This is actually a relatively new fee that lenders are charging. Again, before agreeing to a re-mortgage it could be beneficial to a borrower if they were to get a advice from a financial advisor.
Low fixed rate mortgages can save the consumer a lot of money in interest rates. However, switching from one mortgage agreement to a low fixed rate mortgage require the borrower to do some research and a bit of homework to make the most beneficial financial decision.
