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Fixed
Rate Mortgage Quotes and Information
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Fixed Rates - with a fixed
rate mortgage, the ongoing repayment fixed or set fixed for an agreed period.
The interest rate stays the same regardless of fluctuations in the Bank of
England's base rate or even the mortgage lender's standard variable rate. The
agreed fixed term is normally set to run for between two and five years.
When the agreed fixed term ends, the interest rate typically goes back to the
mortgage lender's standard variable rate.
Advantages
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Certainty of knowing what your repayments will be for a certain amount of time
i.e. sensible budgeting
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Depending upon economic
conditions you may also be able to secure funding at rates which are below
variable rate pricing.
Disadvantages
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Potential loss of flexibility and increased redemption penalties and or
redemption terms (if you change your mind and decide to cancel/ re-mortgage
elsewhere). These 'penalties' provide the lender with a form of
guarantee that new applicants will not re-mortgage elsewhere during the fixed
rate term.
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Rate terms tie you down for
long periods - unforeseen circumstances may alter variable interest rates,
leaving you worse off being locked into a fixed rate for a fixed term.
Background - a mortgage is a contract with a lender that puts up
your property as security against a loan. You cannot sell the property without
the loan being paid off. If you fail to meet mortgage payments the mortgage
lender has the right to repossess the property. The average length of the
mortgage is 25 years but you may opt to shorten the period � the longer the
period the smaller the monthly payments (however the overall cost is higher due
to larger total interest repaid).
Repayment Mortgage (Capital &
Interest) � with this type of mortgage, part of your monthly payment goes toward
paying off the capital and part of the payment is interest on the capital. Every
year the outstanding capital balance reduces, but not the repayments. The
advantage of this type of mortgage is that you know that by the end of the term
you are guaranteed to have paid off the mortgage (provided payments are kept
up).
Interest Only Mortgage � with
an interest only mortgage the only payments to the lender are made up of
interest. None of the capital of the mortgage is paid off until the mortgage
term has completed. It is your responsibility to (in parallel) pay into some
form of investment scheme (endowment, ISA or pension) to pay off the capital at
the end of the term. Following market falls back in 2002, millions of
residential homeowners were consequently told by their life and pension company
that the value of their investment vehicle (essentially funds and unit trusts on
the stock market) may not be enough to repay their mortgage capital at the end
of its term.
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