There are several different types of mortgages available to potential homeowners, but it is the fixed rate mortgage that has potential mortgagers interested as of late. A fixed rate mortgage uses a set interest rate (a certain percentage above the BoE base rate) for a predetermined period of time. While in the U.S. fixed rate mortgage terms average around 30 years, in the U.K. the terms are much shorter, occasionally as short as five years. However, some fixed rate mortgage providers, such as Nationwide Building Society, have begun to offer fixed rate mortgages of up to 25 years.
After the fixed rate term ends, you will pay a variable interest rate for the remainder of the mortgage's term. A variable interest rate tracks the base rate up and down as the BoE alters it, which can be good or bad for the home owner depending on their personal financial situation and on where the base rate is at that particular time. With this said, the biggest advantage of a fixed rate mortgage is that you know exactly how much your monthly payment will be, and this allows for better and more thorough financial planning.
As the United States is in the midst of a financial downturn, the UK is watching. Because of the increasingly difficult financial environment, the Bank of England has lowered the base rate in order to free up more capital for consumers. In fact, according to FT.com, mortgage approvals in December in the UK fell to the lowest level since 1999, putting pressure on the Bank of England to lower interest rates in order to keep the mortgage market on its feet. After the rate cut, Dunfermline offered a two-year fixed rate mortgage at a low 5.29%, which sold out in only four days.
Many people have been wary of fixed rate mortgages in the past because of some of the fees involved. With a fixed rate mortgage, the initial fees are often higher, but you need to keep in mind that you are paying for peace of mind. According to FT.com, a new poll by Nationwide shows that consumer confidence is at a low and that people are looking for stability. Due to this, many consumers are willing to look past the initial fees associated with fixed rate mortgages.
In addition, if you want to repay your mortgage before the scheduled end date of your loan, there are often early repayment fees associated with fixed rate mortgages. However, this is changing. Many lenders are increasing the amount of overpayments allowed annually on fixed rate mortgages, which makes the repayment plans more flexible. To aid in lowering costs for consumers, this past October the chancellor proposed to help lenders by working on measures that would lower the number and the amount of fees on fixed rate mortgages.
With this said, now is a great time to consider a fixed rate mortgage because rates are at a low level, and they may be getting lower in the near future with another BoE rate cut forecasted by industry analysts. Whether you're in the market for your first mortgage or you're looking to remortgage at a lower rate than what you're currently paying, now is a great time to consider a fixed rate mortgage.
If you're interested in finding out more about a fixed rate mortgage, take a moment to fill out a short form, and SimplyFinance will connect you with lenders that will provide you with information and a great rate on a fixed rate mortgage.
