A Fixed Rate Mortgage is a mortgage that has a set interest rate for a specified term. You will pay the same amount of interest for the agreed upon period. The fixed term usually runs between one and five years.

Typical Borrowing Amount

Lenders will allow you to borrow up to one hundred percent of your property value. Standard lenders will let you borrow anywhere from three to five times your salary.  The amount you can borrow will depend on your financial situation. 

Advantages

A fixed rate mortgage provides the assurance of knowing exactly what you will pay each month. This type of mortgage makes it easier to make future financial plans because the interest rate on your mortgage stays at a fixed value. Even if the Bank of England Base Rate changes, the interest rate on your mortgage will remain the same over the fixed period. You have the security of knowing the exact amount you will pay each month regardless of any changes in interest rates. A fixed rate mortgage could be the best choice if you are not sure which way interest rates are going.

Disadvantages

The major problem with a fixed rate deal is that it can look more expensive if interest rates go down. You will not see any benefits if interest rates decline. You will still be paying your fixed rate for the duration of the agreed upon term. Some lenders will try to lock you into the deal. If you decide to change the mortgage type later, you need to be aware of penalty clauses and redemption fees. Taking out a fixed rate deal attached to a tracker mortgage can help you play the market a little better.

Interest Rates

Interest repayment of a mortgage has the biggest impact on the monthly budget of the borrower. The average homebuyer will try to manage their costs as best as they can. Because the UK base rate is set by the Bank of England, and subject to a variety of external factors, borrowers cannot predict it in advance what interest rates will be. However, there are mortgage lenders out there that will consider interest rate movement when figuring your borrowing amount. The interest rate of the fixed rate mortgage is one they will consider. Fixed rate mortgages can be good for first time buyers and anyone on a budget who needs the stability of a set monthly repayment budget. Having a UK fixed rate mortgage means the interest rate depends on the fixed rate value available at the time the agreement is made. You can fix the rate for up to five years, however you may prefer to fix for two or three years. Once the fixed rate period ends, your repayments will go back to a standard variable rate.

Considerations

As with any mortgage deal, it is important to understand all aspects of the Fixed Rate Mortgage before signing an agreement. When in doubt, consult a mortgage specialist.