Everything you need to know about Fixed Rates

Oct 24, 2022 | First Time Buyer, Mortgages, Re-Mortgage

As a first-time buyer, there is a lot of information to take in, which can feel overwhelming during the overall process. In this article, we’re here to help you understand the ins and outs of fixed rate mortgages.

What is a fixed rate mortgage?

A fixed rate mortgage promises a guaranteed interest rate that stays the same for a set period. Compared to variable rate mortgages, this can offer a sense of security and peace of mind because you know what to expect when it comes to monthly repayments.

Instead of being tied to the Bank of England base rate like a tracker rate mortgage, fixed rate deals remain the same during your fixed rate period, regardless of how long the term is.

How long can the interest rate be fixed

At present, fixed mortgage rates range from two, three, five, seven, or ten years, and can vary depending on market condition.It’s important to consider that the term of the fixed rate product is right for you and this is something that you can talk in depth with your mortgage advisor to make sure it fits your current and future objectives.

Two years vs five years: which one should you get?

Most fixed rate mortgages offered to buyers are either two-year or five-year plans. Two-year fixes are perfect for freedom lovers, most suited to those who want to regularly switch to other deals and actively manage their mortgage in the hopes of moving in the near future.

Five-year deals are more suited to people who want to protect their mortgage rate for a longer period. In such a pressing time where many are uncertain of future markets, locking in a rate mortgage for five years seems like the best option, but homeowners must consider whether a lengthy commitment is a right choice for them in the long run.

If you’re unsure of which fixed period is most appropriate for your situation, the team at Lisa Parmley Mortgage Management will happily discuss the best option for you and your loved ones.

Fees, early repayment charge, and overpayments

When looking at different deals, it is important to check any upfront fees, ERCs, and the possibility of penalties when it comes to overpayments. Fixed rate mortgages often come with an upfront fee, and depending on the lender you work with, this could be a completion fee, arrangement fee, or product fee. Common fees begin at £999 but can increase significantly.

ERCs are early repayment charges that are charged as a percentage of the outstanding balance. An early repayment charge is often between 1% and 5% of what is owed on the mortgage agreement.

Many fixed rate mortgages also allow you to overpay up to 10% of the balance each year, which you can pay via regular overpayments or on an ad-hoc basis. However, if you overpay more than 10% in 12 months, you could be liable to pay an early repayment charge.

The aftermath: what happens when the fixed rate mortgage ends?

Once a fixed rate mortgage ends, lenders will transfer you to a standard variable rate mortgage, set separately by lenders at any amount, that can also change at any time. Due to SVRs historically being notably more expensive, the best step forward after ending the fixed-rate mortgage is to remortgage a new deal - something you can agree up to six months before the end of the fixed period.

Our promise to you

Lisa Parmley Mortgage Management offers a service that takes the ‘complicated’ out of mortgage advising. We promise to provide approachable, open, and compassionate support throughout the entire process, helping you understand every element of the journey. Get in touch with us today to learn more about how we can help you with your fixed rate mortgage.

Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage.