Advantages and Disadvantages of a Fixed Interest Rate Mortgage

If you are taking out a mortgage for the first time, you might be confused by some of the terminology used.  For example, the different types of mortgage interest available.

One type of mortgage that is commonly available is a fixed interest rate mortgage.  This means that the interest rate you will pay is fixed for a specified period of time.  Fixed rate mortgages are usually more expensive at the outset than variable rate mortgages and can sometimes be more difficult to obtain.

Fixed interest rate mortgages can be useful for people on a tight budget who want to know exactly how much they are paying each month. With a fixed rate mortgage, you know that your monthly repayments will not rise during the period over which the mortgage rate is fixed, whatever fluctuations there are in interest rates generally.

A fixed interest rate mortgage can end up either benefiting or disadvantaging you, depending on what happens to interest rates after your rate has been fixed.  If interest rates go up, you have made a good decision as your rate will not rise.  If interest rates fall, you could end up paying more than you would have done otherwise. You will not be able to change your rate until the end of the fixed term without paying a penalty.

The rate of interest will often be higher, the longer the length of time the mortgage is fixed.  This is because rates are difficult to forecast and there is more risk to the lender over a longer period of time that interest rates will rise significantly above the fixed rate.

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