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When it comes to buying a home or remortgaging, one of the biggest decisions you'll make it choosing the type of mortgage that's right for you. In the UK, there are two main types of mortgages: fixed rate mortgages and variable rate mortgages. Understanding the difference between the two is key to making an informed decision about which one is best for you. In this blog, we'll take a closer look at each type of mortgage and the pros and cons of each.
Fixed Rate Mortgages:
A fixed rate mortgage is a mortgage where the interest rate remains the same for a set period of time. This period is typically two, three, five, seven or ten years, although longer terms are available. During this time, your monthly mortgage payment remains the same, regardless of changes in the Bank of England's base rate or lender's standard variable rate.
Pros:
The main advantage of a fixed rate mortgage is that it offers certainty and stability. Because your monthly payment doesn't change, you can budget more easily and plan for the future with greater confidence. You also don't have to worry about your payments going up if interest rates rise, which can be particularly important if you're on a tight budget.
Cons:
The downside of a fixed rate mortgage is that you'll typically pay a slightly higher interest rate than you would with a variable rate mortgage. You also won't benefit from any drops in interest rates during the fixed term. If you decide to switch to a different mortgage product before the end of the fixed term, you may also have to pay an early repayment charge.
Variable Rate Mortgages:
A variable rate mortgage is a mortgage where the interest rate can go up or down over time. This type of mortgage is typically linked to the Bank of England's base rate, or a lender's standard variable rate. This means that your monthly payment can change depending on whether interest rates rise or fall.
Pros:
The main advantage of a variable rate mortgage is that you can benefit from drops in interest rates. if interest rates go down, your monthly payment will go down too, which can save you money. Variable rate mortgages also tend to have lower interest rates than fixed rate mortgages, which can make them more attractive if you're looking to keep your monthly payments as low as possible.
Cons:
The downside of a variable rate mortgage is that your monthly payment can go up if interest rates rise. This can make it more difficult to budget and plan for the future, as you won't know exactly how much your monthly payment will be. There's also the risk that interest rates could rise significantly, which could make your monthly payment unaffordable.
In conclusion, the choice between a fixed rate mortgage and a variable rate mortgage will depend on your individual circumstances and preferences. If you value stability and predictability, a fixed rate mortgage may be the better option. If you're comfortable taking on a bit more risk and want to potentially save money on your monthly payments, a variable rate mortgage may be the better way to go. Talk with one of our Advisers to compare options and rates from different lenders to make sure you're getting the right deal.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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