Leanne Macardle

Leanne Macardle

Editor
Published: 29/01/2019

At a glance

  • A fixed rate mortgage gives you the ability to plan future budgeting with a greater degree of certainty.
  • The lowest initial fixed rate may not be the cheapest rate when the whole mortgage term is considered – look at the annual percentage rate of charge (APRC) and the provider’s standard variable rate (SVR) too.
  • A fixed rate mortgage remains the same for the duration of the initial fixed term whether Bank of England base rates rise or fall.
  • Generally, more competitive fixed rate mortgage deals come with higher product and booking fees.
  • It pays to shop around for the best fixed rate mortgage deals.

How does a fixed rate mortgage work?

During the fixed rate period your payments will remain the same, regardless of what variable mortgage interest rates do. So, while you're protected if rates go up, you could also end up paying over the odds if interest rates fall during the fixed rate period. That’s why it may be a good idea to look at what the wider economy is doing when deciding on whether to commit to a fixed rate deal or not.

At the end of your fixed rate term, your mortgage provider will usually switch you to their SVR. This rate will likely be quite a bit higher than your fixed rate, as lenders’ SVRs are usually their highest rates on offer. Those borrowers that do nothing will stay on this variable rate until they’ve reached the end of their overall mortgage deal (either when they’ve repaid their entire loan on a repayment mortgage or when their loan repayment is due on an interest-only mortgage), which can be after 25 years or more.

If you want to change to a different deal or repay your mortgage in full before the initial fixed rate period ends, keep in mind that these mortgages normally come with an early repayment charge (ERC). However, most fixed rate mortgages will allow you to make overpayments, typically up to 10% of the outstanding balance per year, so you could make a decent dent in your loan amount before it’s time to remortgage.

Due to their nature, fixed rate mortgages are particularly appropriate for borrowers who don’t have much leeway in their monthly repayments and/or are averse to risk. Before you apply for one, however, it’s important to remember that as with any kind of mortgage, rejected applications will affect your credit rating, so make sure you’ve done all you can to help your mortgage application get accepted before you take that step. Our mortgage guides can provide you with plenty of tips to help you with this.

Which fixed rate mortgage should I get?

The cheapest fixed rate mortgage is the one with the lowest interest rate and lowest (or no) fee. To find the cheapest option for you, the Best Rate tables are a great place to start. When comparing mortgages, there are a few things to pay attention to. First and foremost, there’s the rate. This will be determined mainly by the value of the property you're looking at and the size of your deposit. Typically, the more money you can put down for a deposit the better your mortgage rate will be, since you present less of a risk to the lender. As such, you may find that you're better off saving a bit more to get a larger deposit; have a look at different LTV mortgage deals to see what you could gain by saving a little extra or overpaying your current mortgage.

It’s not all about the fixed mortgage rates, however. Fees are another important consideration when choosing a fixed rate deal. Mortgages with particularly low rates may look attractive, but some of these come with expensive arrangement fees, which may undo any benefit you would enjoy from the lower rate.

As always, it’s beneficial to read the small print on the terms of your mortgage. Sit down and calculate how much you will be charged at the beginning and end of your mortgage. It's also worth finding out how much you will be charged if you need to cancel. Even if you never need to, it's better to have a backup plan.

Work out the full cost of your mortgage including fees and use this to compare rates. The APRC can be a good comparison tool if you don’t want to do the maths for every single product – these rates take fees into account as well and are featured prominently in the tables.

Finally, you may be certain that you want a fixed rate mortgage, but do you know what term you want to fix for? With more and more providers offering the longest fixed rate term of 10 years, there’s a wide field for you to pick from.

You’ll notice that the longer fixed terms tend to come with higher rates. That’s because you’re paying for the extra years of security, in which mortgage rates on the whole might be going up while yours won’t. That’s why it’s important to look at wider economic cues, such as whether the Bank of England base rate is likely to go up or down in the near future.

If rates are likely to go up, a longer-term fixed rate mortgage could be just what you need to get through years of uncertainty while keeping your monthly repayments stable. If it looks like they may go down, on the other hand, a two-year fixed term could be a better bet.

Armed with this knowledge, you should hopefully be able to easily use our Best Rate tables to find the cheapest fixed rate mortgage for your needs, but if you’re still not sure you could speak to our preferred independent mortgage adviser.

What to do when you're coming to the end of a fixed rate mortgage deal

Up to six months before the end of your fixed rate period, start looking at the best fixed mortgage rates available to see if you can save money. When your fixed rate deal ends, you'll usually go onto your lender's SVR, or sometimes a tracker rate. These don't offer the same payment security as a fixed rate, and, depending on the interest rate climate, could mean that your payments make a sudden jump.

On the flipside, it can sometimes be the case that the variable rate you go onto is lower than the fixed rate you've been paying. While this may come as a pleasant surprise, remember that your provider’s default variable rate is likely not the most competitive on the market, so you might be able to save even more by finding a different deal to remortgage to. If you can, you may want to set the wheels in motion for a remortgage several months before your fixed rate period comes to an end, to avoid accidentally defaulting. By making arrangements in plenty of time, you would be able to simply wait until the fixed rate period finishes (to avoid any ERCs) to remortgage.

Depending on the wider mortgage market, you may be tempted by a variable rate deal. However, those used to the security of a fixed rate mortgage may not be prepared for their repayments changing, so do your research. If you do decide to move your mortgage to a variable rate, consider keeping your monthly mortgage payments the same. This overpayment will reduce the term of your mortgage more quickly.

Pros and cons of fixed rate mortgage guide:

  • Easier to budget. A fixed interest rate mortgage means that your repayments will be the same every month during your fixed rate mortgage term and you can budget well in advance.
  • Resistance to rates. Your payments on a fixed rate mortgage aren't at the mercy of fluctuating Bank of England interest rates – if they rise, your payments stay the same.
  • Higher fees. It's possible that the best fixed rate mortgage deal will also come with a higher product fee.
  • No lower rate benefit. With a fixed rate mortgage, your payments stay the same, even if the base rate goes down.
  • Early repayment charges. Repaying your mortgage early, or even remortgaging, will often involve paying an early repayment charge – this is usually a percentage of the total outstanding mortgage balance.

Mortgage calculator

Our mortgage calculator helps you to see how much your mortgage might cost you each month.

Our how much can I borrow calculator gives you a range of how much a lender might consider lending you under a mortgage. This calculation is only an indication only.

Read our How much can I borrow for a mortgage guide to find out more about what can impact your potential sum of borrowing.

Moneyfacts tip

Moneyfacts tip Leanne Macardle

A fixed rate mortgage, as with any mortgage, is a long-term financial commitment. To be sure that you have all the information you need, please consult our mortgage guides and, if you wish, talk to one of our preferred expert mortgage advisers.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

man handing over keys

At a glance

  • A fixed rate mortgage gives you the ability to plan future budgeting with a greater degree of certainty.
  • The lowest initial fixed rate may not be the cheapest rate when the whole mortgage term is considered – look at the annual percentage rate of charge (APRC) and the provider’s standard variable rate (SVR) too.
  • A fixed rate mortgage remains the same for the duration of the initial fixed term whether Bank of England base rates rise or fall.
  • Generally, more competitive fixed rate mortgage deals come with higher product and booking fees.
  • It pays to shop around for the best fixed rate mortgage deals.

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