Fixed Rate - Is The Best Choice When Remortgaging?

Fixed Rate - Is The Best Choice When Remortgaging?

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When you decide to remortgage your home, one of the decisions that you will have to make will be the type of product. The products available include fixed rate, discounted rate, variable rate and offset, but how do you know if the time is right to select a fixed rate?

As the UK recovers from recession, it seems obvious that interest rates are only going to move in one direction: up. So, taking a fixed rate mortgage might seem like a no-brainer. However, there are various different factors that you have to take into account and fixed rates may be less appropriate for your circumstances than you think. Our guide examines the advantages and disadvantages of fixed rate mortgages.

Fixed rate deals make up fifty to seventy five percent of all mortgages taken out in the UK, suggesting that most home owners prefer security and predictability. The attractiveness of these deals increases when interest rates are rising. Fixed rates become more desirable as anxious borrowers look to protect themselves against the rising cost of borrowing.

Fixed rates have one main advantage; namely that they provide certainty to a borrower in terms of their interest rate and monthly payments. Fixed rate deals tend to run for between two and five years and they fix the mortgage payments at a specified interest rate during that period. As a borrower, you know exactly what you will you pay whilst you are on a fixed rate and your repayments won't be affected by external economic factors.

Fixed rates provide you with the certainty of knowing what your home loan repayments will be. Even if the Base rate rises sharply, your rate would not change. This could end up saving you a considerable sum in interest charges.

One possible downside of fixed rate remortgage products is that your initial monthly repayments are often higher than with other deals. Thousands of UK borrowers are currently on their lenders' 'standard variable rate' (SVR) which, thanks to the low Base rate, means they are paying as little as 3 or 4 per cent. If you therefore wanted to remortgage onto a long term fixed rate, the chances are that this would be at a higher interest rate and so your repayments would initially rise.

On a GBP 200,000 interest only mortgage, a 2 per cent rise in the interest rate charged would cost an additional GBP 333 per month. Of course, you could end up saving a considerable amount of money in the medium to long term, particularly if interest rates rise quickly. However, whilst interest rates remain low, you could actually be paying a 'premium' for the benefit of fixed repayments.

A further problem that can be created by a fixed rate mortgage is that there are always early repayment penalties if you manage to repay the mortgage earlier than expected. If you repay your mortgage during the fixed rate period and wind up leaving the bank out of pocket the fees tend to be quite costly., It is not uncommon to find yourself paying an additional penalty of between 3 per cent of the total loan amount and six months mortgage interest.

Some fixed rate mortgages may be portable, which means that you are able to move your existing mortgage onto a new property rather than redeeming it, but beware as some will still charge a hefty early repayment penalty, and although this can sometimes be added to the new property, you will be paying interest on the additional funds.

Undoubtedly fixed rate remortgage deals are likely to grow in popularity in the coming months as interest rates start to rise. That said, it is still important that you weigh up all the various and competing interest rate options. Don't automatically opt for a fixed rate which might not be the best deal for your current and future circumstances.

About the Author:
Howard O'Gollegos writes for JustCommercialMortgages.com the UK's No.1 site for the latest commercial mortgage rates and commercial property finance news.



Article Originally Published On: http://www.articlesnatch.com


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