In this time of economic hardship, many people are stretched to make their mortgage payments. The answer for many seems to be fixed mortgage rates but is a fixed mortgage rate right for you?
A fixed mortgage rate stays the same for a limited period of time, usually 2 to 5 years. This means for a predetermined period, the buyer will pay the same amount of interest each month for the house. This makes the house payments the same for the first 2 to 5 years. Then after he predetermined time is done, the interest rate begins to fluctuate like any other mortgage based on the Bank of England.
Fixed mortgage rates are generally recommended for first time home buyers or those who are stretched to the limit. However, it is important to remember that after the 2 to 5 years, the rates will fluctuate and you should be prepared.
If the Bank of England rates go down, then you are stuck with the higher fixed interest rates. You can’t just switch mortgage companies because fixed rate loan normally have a penalty for paying it off during the fixed rate payment period. This is known as redemption penalties.
The other big downside to fixed rates is you normally have to pay a higher arrangement fee. Often times the fee is added into the loan so you don’t have to come up with the money up front. However, it means you will be paying interest on the higher arrangement fee for the duration of the loan.
Fixed mortgage rate loans are like any loan, you need to understand what you are doing, before signing. A fixed mortgage rate may be exactly what you need or it could end up costing you more. Seek out free advice before deciding on a loan. It will be well worth the added time.
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