Fixed rate mortgages

What is a fixed rate mortgage?

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A fixed rate mortgage fixes your monthly mortgage repayments for the deal period. With a range of options to select from, could a fixed rate mortgage be right for you?

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Your home may be repossessed if you do not keep up repayments on your mortgage

What is a fixed rate mortgage?

A fixed rate mortgage has an interest rate that stays the same for an agreed period of time. The fixed period is generally between 2 and 5 years, although it is possible to get a fixed term of up to 10 years or more.

Your monthly mortgage repayments will still stay the same throughout the fixed term, even if interest rates like the Bank of England’s base rate change.

This means you won’t see a difference in your mortgage repayments during the fixed term, so you’ll know how much to budget for each month for your repayments.

When the fixed term comes to an end, the rate will return to the lender’s standard variable rate – SVR – which is likely to be higher than the rate on your fixed deal.

A graph showing the average costs of fixed rate mortgage repayments by borrowing type

The average cost of fixed rate monthly mortgage repayments for a first time buyer, a home mover or somebody that’s looking to remortgage, according to MoneySuperMarket data from January 2016 – July 2018.

What are the advantages of a fixed rate mortgage?

Some advantages of a fixed rate mortgage include:

  • Having the security of knowing exactly how much your monthly repayments will cost. A fixed rate mortgage can be a great option for a household with a tight budget, first-time-buyers or for those who like to plan their outgoings in advance.
  • The peace of mind that your repayments won’t increase unexpectedly. Your repayments will stay the same for the deal length, so you know what you’re expected to pay.

You can calculate how much your mortgage is going to cost by using our mortgage calculator.

Disadvantages of a fixed rate mortgage

Some disadvantages of a fixed rate mortgage can include:

  • Interest rates on fixed rate mortgages are unlikely to be the cheapest offers available - which tend to be discounted variable rate mortgages.
  • Fixed rate deals are more expensive because the lender is committing to charging that rate for the whole fixed period – no matter what happens to interest rates generally during this time.
  • If the Bank of England base rate falls, you won’t see any decrease in your monthly repayments because your mortgage rate is fixed, which means you could find yourself on an uncompetitive deal.

Most fixed rate mortgages will also charge you a penalty - known as an early repayment charge or ERC - if you want to get out of the deal before the end of the fixed term.

A graphic showing the percentage of fixed rate borrowers that are looking to buy a home versus remortgage

37% of homeowners looking for a fixed rate mortgage are looking to purchase a new property, compared to 63% who are looking to remortgage with a fixed rate deal, according to MoneySuperMarket data from January 2016 – July 2018.

Choosing a fixed rate deal

Some things you might want to think about when you’re choosing a fixed rate mortgage deal include:

How long do you want to fix your rate for?

Would you prefer to lock in for two years, or would you be happier going for a five or even a 10-year deal? Your choice will depend on how important the security and stability is to you, as well as your plans over the next few years. You should also consider what might happen to the Bank of England base rate.

For example, you may want to set your repayments for five years, but you may miss out on a cheaper deal if rates fall. But if they rise, you'll be glad you locked into a fixed rate deal.

It’s important to weigh up your options because you may have to pay a charge to exit your deal before the term is over. This is one reason why shorter fixes - two years, typically – can be more popular.

How long are you planning to stay in your current home?

If you’re planning to move house in two to three years, or you think your family may outgrow your current place, it might not make the most sense for you to pick a five year fixed deal.

It’s also worth remembering that the longer the fix, the higher the rate tends to be.

How much of a deposit can you put down?

The size of your deposit is also likely to affect what deals you’ll be able to get. Many of the cheapest fixed rates will only be available to those with a deposit of 40% or more. A deposit of that size tends to be out of reach for first-time buyers, but is a potential opportunity for anyone looking to remortgage.

It’s a good idea to look at the maximum loan to value – LTV – ratio a lender is prepared to offer to work out if you can apply.

A graphic showing the average deposit, house price and loan for first time buyers, home movers and people looking to remortgage

The average deposit size for first time buyers, home movers and people looking to remortgage, together with the loan size they’re looking to take out and the purchase price of the property, according to MoneySuperMarket data from January 2016 – July 2018.

Comparing fixed rate mortgage deals

If you do decide to go for a fixed term mortgage, it makes sense to compare what’s out there. Once you know how long you want to fix your mortgage and how big a deposit you have, you can search MoneySuperMarket for mortgage deals to compare fixed rate mortgage deals with other mortgage types to help you find the right mortgage for you.

While you will want to search for the best interest rate to ensure your repayments are as low as possible, it’s also important to factor in the lender’s fees and other costs and charges. You may find it is cheaper overall to opt for a mortgage with a slightly higher interest rate and low fee than one with a more competitive interest rate but a high fee.

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