Fixed interest mortgage
A fixed interest mortgage allows you to repay interest at a fixed
rate, irrespective of the BOE's base rate fluctuations. In
other words you your monthly repayments will remain the same every
month for a time period agreed between you and your lender (usually
between 1 and 25 years). Once this period ends your mortgage will
be transferred to a standard variable rate mortgage.
Usually with a scheme like this, where there is a fixed period
involved, there is a redemption penalty charged for leaving the
mortgage before the fixed rate term has ended. You may sometimes
find that this period continues after the fixed rate period
finishes. This means you could find yourself tied into the mortgage
for several years after the fixed rate period has ended. If the
lenders SVR is high you are stuck with it, unless you pay the
overhanging redemption penalty in order to leave the mortgage.
This is why the lenders SVR is often the most important factor
to consider when choosing a mortgage deal. You may have a low fixed
rate for a number of years, but if you are tied in for several
years after the fixed rate has ended, you might find yourself
paying a high SVR and losing all that you gained.
A fixed interest mortgage is most suitable in certain situations. If
the BOE's base rate is fluctuated unpredictably a fixed rate
mortgage might be a good one to go for because your payments are
fixed and will remain the same so you can budget more easily. If
the BOE's base rate remains consistently lower than your fixed
rate then you would stand to lose a lot of money unless you could
come to an agreement with your lender. However if the BOE's
base rate remains consistently higher than your fixed rate then you
stand to gain a lot of money.
A lender might require a non refundable fee up front booking fee
to be paid on application to reserve the mortgage. Arrangement fees
are also frequently experienced with this type of rate.
Another disadvantage associated with a fixed interest mortgage is
that a lender might require a non-refundable up front booking fee
to be paid on application to reserve the mortgage. Arrangement fees
are also frequently experienced with this type of rate.
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