Advantages and Disadvantages of a Fixed-rate Mortgage Loan Deal

Advantages and Disadvantages of a Fixed-rate Mortgage Loan Deal

Advantages and Disadvantages of a Fixed-rate Mortgage Loan Deal

If you aren’t in a position where you’re going to incur an early redemption penalty, you’ve no doubt considered signing-up to a fixed-rate mortgage loan agreement. It’s by far the most popular type of home loan because it provides a family with greater stability in what are very uncertain times.

The lowest fixed-rate mortgage deal is the best option for homeowners who anticipate that interest rates are likely to go up in the future. The longer the term of the loan or period of payment certainty you require, the less favourable the terms will be. That’s how banks amortize the likelihood of rate changes.

Advantages of a Fixed Rate Mortgage Loan Deal

When you’re living on a set income, it can be difficult to find the extra needed to cope with a sudden rise in the Bank of England base rates. A fixed interest rate mortgage allows family to budget because you know precisely how much that you’ve got to pay your lender each month.

If your timing is right, you can substantially reduce the repayments on your mortgage. Rates tend to go up when economic prospects are improving or when the economy starts to over-heat. You can save thousands of pounds provided that you get your timing right.

Many homeowners thrive on certainty and knowing precisely how much they need to pay their lender. If you are the sort of person who wants to know what your repayments will be 12 months from now, you’re likely to prefer a fixed rate of interest on your mortgage deal.

Disadvantages of a Fixed Interest Rate Mortgage Loan

If the world’s leading economists find it difficult to agree upon the direction of interest rates, it’s not going to be any easier for the layman. If you lock-in and rates fall in the future, your monthly mortgage repayments will be substantially higher.

If interest rates do fall and you want to get a more favourable rate of interest, you’ll have to pay an early redemption penalty to release yourself from the terms of the agreement. Depending upon how long is left to run, this can amount to several thousand pounds.

If you have a bad credit history, the cost of borrowing money will be far higher. This means that you may actually be better-off staying on Standard Variable Rate (SVR) if you used to have a good credit rating. You may also find it difficult to refinance, especially if you don’t have much equity in your home.

Should You Get a Fixed Interest Rate Mortgage Deal?

Fixed-rate mortgage loans are very popular with homeowners because they offer homeowners certainty. If you’re on a set income, you don’t have to worry about rising Bank of England base rates. If you are on a Standard Variable Rate (SVR) or tracker mortgage, your mortgage repayments are likely to change.

The main issue with the lowest fixed-rate mortgage deal is that it might not still be the lowest rate 3 years from now. The most common mistake made is locking-in at a high rate because you expect interest rates to continue in that direction. Things have a habit of changing.