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Should I fix my mortgage?
It's the question that plagues homeowners and first-time buyers alike. In general, whether you decide to go for a fixed or variable rate deal depends on your personal circumstances, your financial position, and the direction of interest rates.
The best deal for you will depend on how long you plan to be living in your property, your attitude to risk, income level, and credit history.
Of course, you can choose to take whatever path you want - but if you're looking for some unbiased opinions, here are the arguments for and against fixing your mortgage.
What is a fixed-rate mortgage?
A fixed-rate mortgage is one of the most popular types of mortgage and is suited to those who want certainty on their repayments.
This type of mortgage provides a set interest rate and monthly repayment for the initial fixed term of the mortgage, which means your monthly repayments will not change. It is typically more expensive than a variable rate mortgage, so you'll need to consider whether it's worth paying this additional cost for the security of knowing your payments won't change.
What is a variable rate mortgage?
A variable-rate mortgage has an interest rate that can (and usually will) change over the initial term of the mortgage.
It means your mortgage repayments could go up or down depending on what is happening with interest rates. As such, this type of mortgage tends to be cheaper than a fixed-rate mortgage.
What are the benefits of a fixed-rate mortgage?
The biggest benefit of a fixed-rate mortgage is that your repayments will remain level for an agreed amount of time, and you can plan your budget accordingly.
While interest rates remain low, there are some great mortgage deals out there with fixed-rate periods to suit any situation.
What are the benefits of a variable rate mortgage?
Variable-rate mortgages tend to come with lower interest rates, so it's wise to look at your options if you think the interest rate will rise or fall further.
As long as you can handle fluctuations in your repayments, this type of deal could be a great financial solution.
What are the drawbacks of fixed-rate mortgages?
The main drawback to fixed-rate deals is that they come with an early repayment charge which you'll have to pay if you decide to change or move your mortgage in the initial term.
This charge can be very high, so you need to carefully consider whether a fixed-rate deal is suitable for your situation before committing.
Related to the early repayment fee, another downside with fixed-rate mortgages is the limits on mortgage overpayments. If you find yourself looking to pay more than your set monthly repayments, you should know that there is typically a cap on how much you can overpay each year with fixed-rate mortgages. This cap means that if you want the flexibility to pay off your mortgage early while interest rates are low, this might not be the best option for you.
What are the drawbacks of a variable-rate mortgage?
Your mortgage rates and mortgage repayments on variable rate deals will fluctuate with the market, which can make budgeting more of a challenge. If the Bank of England decides to raise interest rates, you will feel the change in repayments sooner than someone on a fixed-rate mortgage deal.
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What's the verdict on fixed-rate mortgages?
Fixed-rate deals can be very beneficial if you don't want any surprises regarding your mortgage.
You should also consider the impact of early repayment charges on your budget before signing up for any new deals - if you expect your circumstances to change during the fixed-rate period, you could consider a tracker mortgage.
Remortgaging in 2022 – is now the right time to fix, and for how long?
There's a lot of confusion around the Bank of England base rate – it gets a lot of coverage, but what actually is it? And how does it affect me?
Bank of England base rate is the interest rate that UK banks and building societies pay to the Bank of England when they borrow money. A change in the base rate will affect all homeowners and remortgagers with a variable or tracker rate and those looking at future fixed-rate deals.
The base rate has a big influence on our mortgages and other borrowing rates, which means it affects how much we pay every month on our home loans and credit cards. The base rate was lowered to 0.1% on March 19, 2020, to mitigate coronavirus's economic impact. On December 16, 2021, the base rate was increased from 0.1% to 0.25% to fight inflation.
Experts predict that 2022 could see rising interest rates, which will affect your mortgage interest payments.
Therefore, it is advisable for homeowners looking to remortgage in 2022 to consider fixing, as this will protect them from future changes, and they can budget accordingly. It's impossible to say for sure how much interest rates will rise in 2022, which is why it's essential to consider the full scope of what you need from a mortgage deal.
How long should I fix for?
How long you fix your mortgage for is largely down to your personal circumstances and future plans. For example, if you are planning to move in the next few years or expect an income change. A fixed-rate mortgage means only fixing for the initial period, after which you will typically remortgage in exactly the same way to a new deal.
What happens at the end of the fixed period?
Once the initial term ends on a fixed-rate mortgage, you will generally revert automatically to the lender's standard variable rate (which is not preferable for most people) or remortgage to a new deal.
Your new deal could be either a fixed-term or variable mortgage, depending on what you opt for at that time.
Find your perfect fixed-rate mortgage with Teito
At Teito, we're the online whole of market mortgage advisor that makes mortgages easy. We offer a streamlined service and have access to more than 90 lenders, so we can find you the best possible deal.
From the outset, our experts will review your needs and circumstances to ensure they match with a mortgage that is right for you. Get started now by comparing deals, and you could get a mortgage in principle in 5 minutes!
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