Some people prefer to know how much their monthly mortgage payments will be. If this applies to you, then a fixed-rate mortgage would be better suited for your circumstances.
A fixed-rate mortgage is when your monthly mortgage payments will be a set amount every month. You need to be aware that the longer you fix for, the higher the rate becomes. But this will not change the duration of your term, which can vary anywhere from 1-10 years.
If you are looking for a cheaper fixed-rate mortgage, make sure to avoid taking out a longer rate. Otherwise, you could face much higher interest rates if you take one out any longer than 2 years.
If you take out a mortgage for ten years at a certain percentage, interest rates might have risen during your term, leaving the lender out of pocket whilst you’re sitting comfortably on a lower percentage.
That presents a higher risk to the lender, so longer terms tend to come with higher rates. In sticking to a shorter-term fixed-rate mortgage, you will find yourself with a better rate, but only for that two years.
Those two years will eventually come sooner rather than later, implying that you will have to start searching again for more deals at the end of the mortgage.
If the interest rates have risen during the duration of those two years, then you could be faced with higher payments than you were used to at the start of renewal.
If you prefer to limit searching for new deals every two years, then maybe you would better suit a 5-year rate. By fixing it for five years, you would have a stable recurring payment for a much longer time.
As previously discussed, being on a fixed-rate mortgage for 5 years will mean that you will be paying more per month than you necessarily would on a two-year rate.
When people consider taking out a long-term, they usually range anywhere from 7-10 years. Long term fixed-rate mortgages were never a popular choice to choose, and they aren’t something we would recommend. But, like most mortgages, there are both pros and cons to taking out a long term fixed-rate mortgage.
Anything could happen within a decade, so committing to a fixed payment for as long as 7-10 years may create problems with lenders. If the rate suddenly drops below your current rate, instead of rising. You may end up paying well over what you otherwise would’ve been, and once you are in the deal, you cannot get out of it.
A Repayment Charge (ERC) is where something happens that affects your financial situation. This leaves you having to repay your mortgage earlier than you had initially expected and, your lender may present you with a charge.
How they calculate the charge is they calculate a percentage of the remaining that you owe. An example would be if you manage to pay off your £100,000 mortgage early and your ERC is 4%. You would be charged a £4,000 penalty as you have broken the fixed-rate contract.
Nobody can get away with not fullying paying off their fixed rate and will still be charged with an ERC. For example, if someone is aware that their fixed rate is due to end soon. But start looking up deals for their next fixed-rate mortgage.
If they find a great deal and think that the rate may increase, they may look to pay off the rest of their fixed-rate payments to switch to this new deal, even though this, of course, comes with additional charges.
We advise that you avoid chasing “headline” deals advertised. Chances are, your circumstances may have changed, and you’re not guaranteed to get it at the rate you were hoping to achieve.
If you are a first time buyer in Birmingham or moving house and would like more information or some help with a fixed-rate mortgage, our experienced team of mortgage advisors will be on hand to provide any assistance they can.
Remember that the lowest rates come with the highest setup fees, which some customers are keen to avoid. Get in touch today for more fixed-rate mortgage advice in Birmingham.