You’ve heard the term ‘fixed-rate mortgage’ – but what does it mean, and is it the best option for you?

Here’s a quick guide to understanding fixed-rate mortgages: what they are, how long you should fix your deal for, and alternatives you might want to consider.

What is a fixed-rate mortgage deal?

A fixed-rate mortgage deal sets the interest rate on your mortgage repayments for a pre-determined period. This means your monthly repayments will be the same each month until the end of the agreed fixed-term.

What happens at the end of the fixed term?

The term is for the first part of your mortgage deal, rather than the entire loan period. For example, your mortgage may be repayable after 25 years but the fixed term may be only for five years.

After your fixed term ends, you’ll be placed on a standard variable rate set by the provider. This rate isn’t guaranteed and often changes. That’s why many people choose to remortgage at the end of their fixed term deal to avoid the higher standard interest rate charges.

How long should I fix my mortgage for?

You can fix your mortgage between one and ten years. The most popular options are two-year or five-year fixed-terms.

A longer fixed-rate deal may seem like a no-brainer at first, but wait! There are reasons to choose a shorter fixed term on your mortgage.

If you want to move home or remortgage in the next five years, for example, you may have to pay thousands of pounds to exit your current fixed-term mortgage deal. This would offset any savings made by being on a fixed-term deal.

A longer term will also have a higher interest rate. Mortgage lenders need to protect their investments: without knowing the market in 10 years, they’re taking a risk by fixing the mortgage term for that long. To make up for this risk, the fixed interest rate is higher than a shorter deal.

Speak to your local mortgage adviser about your current – and future – plans for your home. They’ll be able to offer impartial advice about the best fixed-rate term length to suit your circumstances.

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Are there downsides to fixed-rate mortgages?

Fixed-rate deals are popular among homeowners because of the convenience and stability they offer. However, like any product, there are downsides to consider before you take a deal.

If you need to change your mortgage – or even repay it all early – and you’re still in the fixed period of your deal, you’ll face huge fees. These fees are usually linked as a proportion borrowed and owed – and as fixed-terms are at the start of your mortgage deal, your proportion will be incredibly high.

Fixing the rate also means you can’t take advantage of positive fluctuations in the market. If interest rates fall, you could end up paying a higher rate than if you took a different type of mortgage deal.

What are the alternatives to fixed-rate mortgages?

If you’re worried about facing early repayment charges or you’re planning to move again in the next year or two, there are alternative mortgage deals to consider.

Variable mortgages, for example, track the market interest rate. This means you could pay a different amount each month – but you could also save thousands of pounds in interest rates compared to a fixed-term deal if the market rate drops.

How to find the right mortgage deal

Fixed-term mortgage deals are very popular for homeowners – but is it the right option for you?

You could do all of the legwork of a mortgage application yourself – but this could mean you’re not getting the most suitable deal. Going direct to mortgage lenders means you miss out on the thousands of deals a mortgage adviser can arrange for you.

Take the guesswork out of your mortgage search: book an appointment with your local mortgage adviser to find out more about the mortgage options available to you.

Important information

Your home may be repossessed if you do not keep up repayments on your mortgage.

There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

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