As rule the longer your fixed-rate mortgage deal the higher the interest rate usually will be. Therefore, if you are looking for the lowest rate possible then it’s short term fixed rate you need. As a result, your mortgage will be up for renewal quicker and when you come to remortgage with a new deal your payments might increase.
Typically mortgages are taken out and re-payed over a period of 15, 20, 25 years. Over that time interest rates will fluctuate (either up or down). With a variable rate mortgage monthly repayments are subject to mirror that change. Many people will worry about interest rate rises, particularly after such a long period of low rates as we have enjoyed over the past ten years.
The bank of England raised the UK interests rates to 0.75& in August 2018 and most people are expecting to see a rise in interest rates in the near future. With this in many peoples minds, a fixed-rate mortgage offers certainty to borrowers, allowing for forward planning of monthly outgoings, with the assurance of no sudden rise in the monthly mortgage repayment
A medium-term fixed rate would be the way to go If you prefer not to be re-arranging a new mortgage so quickly. We find that five year fixed rates are popular as they provide the certainty that monthly payments will not increase in the foreseeable future. During this time though there is a risk that interest rates may also drop meaning you are paying more than you might have been had you fixed for a shorter period.
There are seven and ten year fixed rates mortgage deals on the market, although these are limited. Fixed-rate deals of this length have always been the least popular. Customers tend to feel this is too long to fix in for as a lot can change in a decade! These are the most expensive fixed mortgage products available.
When choosing your mortgage deal be careful to watch out for booking and arrangement fees. A booking fee is payable upfront and an arrangement fee is payable on completion. Some people add fees to their mortgages, but this increases the total amount repayable as interest accumulates on the fee.
If you are taking out a small mortgage then it is more likely that you would want to take out a mortgage with no fees, even if a slightly higher rate of interest applies. The opposite applies if you are taking out a medium or large mortgage, your Advisor will help you with this tricky decision.
Choosing a mortgage requires consideration. There isn’t a single mortgage product that suits everyone. Your selection will depend on your personal circumstances. For example, if you think you may be moving in the next two or three years you may wish to choose a fixed deal for that period. (It is possible to ‘port a mortgage’ but you may be better discussing this with your mortgage advisor in advance). If this is your final move, perhaps a longer-term fixed rate may be more suitable.
One final point worth remembering is that with a fixed rate if mortgage interest rates fall, you will still be paying the agreed higher fixed rate.