Fixed Rate
With this type of mortgage, the interest rate you will pay is for a specific period of time. This guarantees that the amount you pay back each month will not change for the length of that period. When the fixed period ends, your payments will revert to the standard variable rate.
The advantage of having a fixed rate mortgage is that if you are trying to budget carefully over the first few years of your mortgage, you will not be caught out by any increases in interest rates as you will know how much you will be paying each month. The reverse is also true, if interest rates drop below the fixed rate you will not benefit from it, but you will still be sure of how much has to come out of your bank account each month.
One to five years is the usual period for a fixed rate mortgage, the best rates will occur in the first one to three year time frame. Some lenders offer fixed rate mortgages lasting ten years or more- in some cases the full length of the mortgage term.
Variable rates have been as high as 18% in the past and fixed rates have proven very popular with people looking to protect themselves against interest rate movements. Interest rates have fallen in recent years and many borrowers have been turning to base rate tracker mortgages instead to ensure that they benefit from rate decreases immediately.
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