Fixed Rate Mortgages – knowing what you have to pay is valuable in itself

Fixed Rate Mortgages knowing what you have to pay is valuable in itself

A mortgage is a loan that is used to purchase a property. Taking out a mortgage and purchasing a property are serious financial commitments, which should not be taken lightly and rarely are. For most homeowners, their mortgage payment is their largest monthly financial commitment in size and in importance. Your mortgage payments must be met on time and in full, or you risk having your property repossessed by the mortgage lender.

Due to the importance of their mortgage to homeowners, and the serious consequences involved in failing to keep up with mortgage payments, it is not something that most people feel comfortable gambling with. Different types of mortgage products are available, but broadly speaking all mortgages fall under 2 categories: Fixed Rate Mortgages and Variable Rate Mortgages.

As the name suggests, a Variable Rate Mortgage can and will fluctuate ('vary') up and down in line with changes in the central rate of interest otherwise known as the "Bank of England Base Rate" or the "Base Rate" for short. Changes in your interest rate lead to changes in the amount you have to pay on your mortgage each month. With a Variable Rate Mortgage it is impossible to accurately predict what your monthly mortgage payment will be at any time in the future. If it goes down you are happy because you have more disposable income to allocate to other things. But, if it goes up you may feel the squeeze particularly if rates increase rapidly over a relatively short period of time. This can be referred to as "mortgage payment shock".

Many people opt for a Fixed Rate Mortgage, even if they could get a variable discounted rate mortgage at a lower initial interest rate. They are willing to pay more simply for the comfort of knowing what their mortgage payments will be for a predefined period of time. This is the attraction of Fixed Rate Mortgages; you know what you will need to pay on your mortgage for a predefined period of time, and you are therefore able to budget more effectively.

Think carefully and take professional advice from a qualified whole of market mortgage adviser before you take out a mortgage or remortgage. Interest rates are unpredictable at the best of times, and are especially unpredictable in an unstable economy as we are currently experiencing worldwide. So if you are concerned about fluctuations in interest rates, it could pay to be prudent and opt for a Fixed Rate Mortgage, then at least you know you will know what you need to pay, which is valuable in itself.

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