Pros and Cons of Fixed-Rate Mortgages

If you are looking for a mortgage, you may be wondering what is the most suitable type for you.

Fixed-rate mortgages have many advantages, but there are downsides to this product too – both of which we investigate here. We also identify the best way to compare fixed-rates and why a broker remains your best course of action for securing the best deal.

What are the advantages of a fixed-rate mortgage?

Fixed-rate mortgages are popular for good reason.

They offer the following benefits:

• Fixed costs – With a fixed-rate mortgage, a person’s mortgage payments stay the same for the duration of the fixed-rate term, helping households to budget more easily.

• Protection – If the Bank of England raises its base rate, mortgage costs can rise too as providers increase their interest rates. However, if you have fixed a rate for a set period of time, your rate won’t move until the term ends.

• Lower than standard variable rates – Typically, fixed-rate mortgages are lower than the SVRs that mortgage providers offer. While fixed-rate products come with product fees to lock in those rates, it can save a household money over the term of a mortgage.

What are the drawbacks?

Fixed-rate mortgages have disadvantages too.

They are:

• Unable to take advantage of a rates drop – The Bank of England could lower interest rates during the course of a fixed-rate mortgage term meaning you could have potentially lowered your mortgage costs during that time.

• Early repayment charges – Fixed rate mortgages often come with ERCs if you want to overpay your mortgage by more than 10% per year or pay off your mortgage in full. Standard variable rate mortgages don’t usually come with these penalties.

• Higher rates – Generally, the longer you want to fix for, the higher your rate is. That means your mortgage payments may be higher if you choose to lock in for longer. Plus, there is then no way of getting out of the deal to access any better rates without paying ERCs.

• Product fees – These types of mortgage usually require the applicant to pay a product fee to access the best rates. They can cost hundreds to a couple of thousand pounds – which can materially eat into the savings of the secured lower rate.

How to compare fixed rate mortgages

The market for fixed-rate mortgages is vast. Comparing them against one another and then considering them against your own financial circumstances is a laborious process – even with the help of a comparison website. Yet, getting the right mortgage for you is crucial to ensuring you secure the best deal where your mortgage payments are minimised as much as possible, for as long as possible.

Using a mortgage broker can prove invaluable as their experience means they have extensive mortgage market knowledge. They won’t just consider fixed-rate mortgages either. They’ll consider all alternatives too.

They’ll know what mortgages you are eligible for and, within that choice, the mortgages that offer the best rates and terms for you. Discussing your options with one of the brokers we work with can save you money and improve your chances of being approved the first time in your mortgage application.

Contact us today so we can connect you with a broker who can advise on the best fixed-rate mortgage options for you.

Alternatives to fixed-rate mortgages

While fixed-rate mortgages are popular, it’s important to consider what your alternatives are so that you pick the most appropriate product.

Other common mortgage types are:

Variable and tracker agreements

• Variable – Standard variable mortgages (SVRs) are products where your provider charges a standard rate which can change on a monthly basis. They are often more expensive than fixed-rates but you won’t usually be charged for overpayments, paying off your mortgage early, or for moving your mortgage to another provider.
• Tracker – The interest charged on tracker mortgage products follow another rate – commonly the Bank of England base rate – plus a set amount agreed by you and your provider. Your payments can therefore change on a monthly basis.

You can read more about these mortgage types in our guide to tracker vs. variable rate mortgages.

Other alternatives

• Flexible – Some providers offer mortgages where you can change how much you pay, repay early or even take out the equity you have put in. Some will allow payment holidays too.
• Offset – These products mean you can link your mortgage to a savings account so you can reduce the interest you pay. They essentially net off the interest you would have earned on your savings against the interest you owe on your mortgage balance.

Should you fix in for longer than five years?

Locking in a fixed-term rate for a long period of time – such as 10 to 15 years – is not common, but it can be done. Before applying for one, however, consider the following pros and cons as they won’t be suitable for everyone.

Pros

In general, long-term fixes offer the same pros and cons as a shorter fix such as 2,3 or 5 years, but to a far greater degree.

• Predictability: Having the same monthly cost for 10 years can offer peace of mind and help with household budgeting for an exceptionally long period of time.
• Lower remortgaging costs: You’ll also have far lower remortgaging costs to pay with fewer product fees.
• Longer protection: You won’t be exposed to interest rate rises from the Bank of England for longer than a typical fix rate.
• Credit checks: Finally, one big advantage of long-term fixes is that you’ll be subject to fewer hard credit checks which remain on your file. If you are looking to access funding, perhaps for a car loan, the less credit checks in your history, the better.

Cons

• Higher payments: You’ll likely have higher payments than you would even a 5 year fix. You’ll initially be paying more each month in interest on your mortgage, therefore. Though, if the Bank of England base rate rises several times during the entire term, eventually you could end up paying a lower interest rate than would otherwise be available.
• Lack of flexibility: The Bank of England could lower interest rates. It could be that it would have been cheaper for you to have several fixed-rate mortgages instead of one long one.
• Hard to remortgage or move provider: There are scenarios where you’ll want to remortgage and long-term fixes aren’t always portable. The chance of one of those scenarios occurring, like downsizing for example, will increase the longer your fixed term is.

Get matched with a broker experienced in fixed-rate deals

Fixed-rate mortgages are common, but they’re not the only type of mortgage out there. Picking the right mortgage type, and mortgage product, is difficult to do on your own due to the wealth of options available to you.

A broker can help you weigh up the pros and cons of fixed-rate mortgages in addition to all other mortgage types for which you are eligible. They can then advise you as to what product will be most suitable for your situation given your financial circumstances and what you can afford.

Our free, no-obligation broker matching service connects you with the best broker for your needs. Call us on 0808 189 0463 or contact us today so we can put you in touch with one of the brokers we work with.