Before we get into why a fixed rate mortgage is good for you, let's talk about the downsides to them. There's always a downside isn't there?
There's usually always a redemption penalty if you have to redeem (cancel the mortgage) early. You may move home or simply remortgage. Doing so would cost you.
There's nearly always a setup charge. Why they need paying extra for simply doing their jobs I don't know. But they do and I'm sure they will continue to hit us with these setup charges.
Possible sharp increase when the deal ends. As you've been on a fixed rate for a period there's a chance of a sharp rise when the deal finishes as you go on a normal variable rate.
There is of course the chance you could have a bit of a drop as well, which wouldn't be so bad.
If the rates drop during your deal you are stuck paying more than people on an SVR. Difficult situation but you have to take it on the chin.
Of course the complete opposite could happen and the rates may rise. Great position to be in if this happens.
Those are the downsides to a fixed rate mortgage so lets list my 5 favourite points about them.
1) Sleep soundly knowing that next months payments will be the same as this months. No nasty payment hikes.
2) Steady payments every month let you know exactly where you stand financially.
3) If you are on a tight budget you get complete control over your budget. Which could be essential.
4) You have no risk, and having no risk does away with any worry you may have on a variable rate mortgage.
5) These fixed rate mortgages usually come with an all round lower rate than a normal SVR mortgage (single variable rate). This makes them less expensive.
To wrap up I think a fixed rate mortgage is a better option than an SVR one. There's good and bad in both but you would be sheltered from rate hikes that have occurred in the recent past. There was a 10% hike once, in a very short time.
This could mean double your payments in just a few months. You wouldn't just be losing sleep here, you could potentially be losing your home as well. Nasty.
There's usually always a redemption penalty if you have to redeem (cancel the mortgage) early. You may move home or simply remortgage. Doing so would cost you.
There's nearly always a setup charge. Why they need paying extra for simply doing their jobs I don't know. But they do and I'm sure they will continue to hit us with these setup charges.
Possible sharp increase when the deal ends. As you've been on a fixed rate for a period there's a chance of a sharp rise when the deal finishes as you go on a normal variable rate.
There is of course the chance you could have a bit of a drop as well, which wouldn't be so bad.
If the rates drop during your deal you are stuck paying more than people on an SVR. Difficult situation but you have to take it on the chin.
Of course the complete opposite could happen and the rates may rise. Great position to be in if this happens.
Those are the downsides to a fixed rate mortgage so lets list my 5 favourite points about them.
1) Sleep soundly knowing that next months payments will be the same as this months. No nasty payment hikes.
2) Steady payments every month let you know exactly where you stand financially.
3) If you are on a tight budget you get complete control over your budget. Which could be essential.
4) You have no risk, and having no risk does away with any worry you may have on a variable rate mortgage.
5) These fixed rate mortgages usually come with an all round lower rate than a normal SVR mortgage (single variable rate). This makes them less expensive.
To wrap up I think a fixed rate mortgage is a better option than an SVR one. There's good and bad in both but you would be sheltered from rate hikes that have occurred in the recent past. There was a 10% hike once, in a very short time.
This could mean double your payments in just a few months. You wouldn't just be losing sleep here, you could potentially be losing your home as well. Nasty.
About the Author:
Monty Burn was head of the Voluntary Mortgage Regulator until his sacking for helping too many people. Discover how to get a great fixed rate mortgage deal or grab a FREE Mortgage Bible at his website Mortgage Watchdog. Insider knowledge can be yours.
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