Fixed Rate Mortgages

A Fixed rate mortgage is the most frequent used form of a mortgage loan. With these types of mortgages, the payment amount and rates of interest will always stay the same.

During the mortgage term, interest rates will fluctuate but because the interest rate on these mortgages is fixed, it will stay the same. Because of this, the borrower will actually save money and may be able to repay their mortgage quicker.

These fixed rate mortgages involve the borrower repaying their mortgage over a number of years using a set number of repayments. There are a number of different options available, including a 15 year mortgage loan. The most common is actually a mortgage loan for up to 30 years. The smaller the period the borrower has decided to repay their mortgage, the higher the actual monthly repayments will be as well as less interest being payable in the long term. This is because there is less time to repay the mortgage in. If they chose the longer periods such as 30 years, then they will pay less monthly and of course a lot more interest.

The mortgage lender will agree on a set interest rate for a specified time period. Irrespective of changes in the interest rate the borrowers’ monthly payments will stay the same. Normally these loans are available between 1 and 25 years. Normally a lender will need a non-refundable booking fee prior to reserving the mortgage loan. Other charges including arrangement fees are also normally experienced with these types of interest rates.

A lot of people feel more at ease by obtaining a fixed rate mortgage. This is because it is a set monthly payment, meaning that they know exactly what they are repaying each month making it a lot easier for them to budget their money. These Fixed rate mortgages will also let the borrower pay extra money on top of their existing payment. This will enable them to repay their mortgage quicker. This could make the borrower feel in control of their money a lot more.

A borrower will be able to obtain a fixed rate mortgage from a number of financial institutions, including a lot of banks, building societies and of course the online lenders. The lenders will have a variety of this mortgage available simply due to the fact that there are tailor made 'additions', choices and services that are able to be added into the mortgage in order to make it better suited to the client. Including these options, the growing mortgage industry has now established independent mortgage advisors, independent loan advisors and private mortgage brokers who are all willing to show the borrower their variety of fixed rate options.

Just like all types of loans, a fixed rate mortgage also has a few disadvantages. Firstly, they are not available to the higher-risk borrowers, nor those people who are not able to prove their earnings; although, there will be other options available for these people. Another problem is the length of time it may take for the borrower to repay their mortgage. The 30 year mortgages will normally cover the borrowers’ whole working life. However, if the borrower is looking for a more stable mortgage then these mortgages are worth considering.

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Other disadvantages of these types of mortgages are an unexpected increase in the payable amounts at the end of the fixed rate term; if interest rates fall below the fixed rate the borrower has, then they could lose money; after the fixed term has ended, some lenders will require the borrower to be tied into a variable rate with them for a set period which could also cost the borrower more money; some lenders may charge redemption penalties on these mortgages which can stop the borrower restructuring their mortgage.

Fixed rate mortgages are more suitable to a borrower that requires larger borrowings; individuals who are on a tight budget who expect an increase in wages within the first couple of years of their mortgage; a first time buyer who is looking for a form of security for their first couple of years of buying their home and of course a borrower who expects a continual increase in interest rates.