The process of buying a house can be exciting and scary at the same time. When it comes to taking out a mortgage to help you buy the property of your dreams, you need to make sure you’re clued up on what the different types of mortgage available to you are, and how they differ.
Fixed rate mortgages offer some well-needed stability in the current cost-of-living crisis. As people with fixed rate mortgages are able to predict what their monthly mortgage bill will be, they are better able to budget their finances. If you don’t have a fixed rate mortgage, you may feel stuck paying high interest rates with little way to predict what these payments could go up to. The good news is that it is possible to switch to a fixed rate mortgage.
Our Octagon Capital blog explores what fixed rate mortgages are, what impacts your eligibility for one, the benefits and disadvantages of fixed rate mortgages, and whether or not it is possible to switch to a fixed rate mortgage from a variable mortgage. Read on to find out more.
What is a Fixed Rate Mortgage?
With a fixed rate mortgage, the interest rate on your mortgage remains the same throughout the duration of your mortgage. Whereas with a variable mortgage the interest rates you are charged fluctuate according to the economic environment of the time, fixed rate mortgages stay the same as when you first took out your mortgage.
As with any type of mortgage, fixed rate mortgages are long term investments, and a huge commitment. If you aren’t sure whether or not you would be able to meet your scheduled mortgage repayments, you shouldn’t take one out. Defaulting on mortgage payments can damage your credit score – making it more difficult to borrow money in the future – and incur late fees. Only ever borrow what you know you definitely afford to pay back.
What Impacts Fixed Rate Mortgage Eligibility in the UK?
Your eligibility for a fixed rate mortgage can be impacted by a number of different variables, including but not limited to:
- The amount of money you’re looking to borrow.
- How much money you have towards a deposit.
- Your employment status, and any debts you may have.
- The kind of property you are hoping to buy.
- Your credit rating.
- Your regular spending and how affordable the mortgage is for you.
What are the Benefits of Fixed Rate Mortgages?
People choose to take out fixed rate mortgages for a variety of different reasons. Some of the benefits of having a fixed rate mortgage include, but aren’t limited to:
- With a fixed rate mortgage, you will have a solid idea of what your mortgage bill will be each month, helping make it easier to budget and plan effectively.
- If the interest rates are low at the time when you take out a fixed rate mortgage, you can benefit from these lower rates throughout the term of your fixed rate mortgage.
- By choosing a fixed rate mortgage, you afford yourself some protection against increases to interest rates from the Bank of England.
What are the Disadvantages of a Fixed Rate Mortgage?
There are also some disadvantages to fixed rate mortgages. This includes:
- If interest rates fall drastically, those with a fixed rate mortgage will have to refinance and remortgage to take advantage of these rates. With this comes the extra fees and costs associated with taking out a mortgage.
- Fixed rate mortgages usually have early repayment fees, often charged as a percentage of the outstanding mortgage balance.
- Some lenders restrict the amount you can overpay on a fixed rate mortgage each month.
Can I Switch to a Fixed Rate Mortgage?
Yes, it is possible to switch to a fixed rate mortgage. However, to do this, you will most likely need to remortgage.
In the current financial climate, many people are considering switching from a variable rate mortgage to a fixed rate mortgage, because of how volatile the markets are right now. Before you make this decision to switch to a fixed rate mortgage, you should consider all the pros and cons of fixed rate mortgages, and whether it will cost you additional money to do this.
As always, before making any big financial decisions, it’s imperative to speak to advisers and also make sure you can afford the move you want to make. Make sure that you are only ever borrowing what you know you can afford to pay back. Defaulting on mortgage repayments or any other loan repayments can result in a cycle of debt due to late fees, as well as a damaged credit score and history.
