Which fixed mortgage?

Which fixed mortgage is good for you?

So you’re looking for a fixed rate mortgage and aren’t quite sure which one to go for? In this article, we try to throw some light on fixed rate mortgages to help you make the right decision. Feel free to write to us should you need clarification or any additional information.

Introduction

As the name implies, a fixed rate mortgage is a mortgage for which the interest rate is unchanged for either the full term of the loan or for a specified period of time. This means that the borrower has to pay a particular amount as instalment per month based on a certain rate of interest, which would not change throughout the period for which the interest rate is fixed. Generally fixed rate mortgages are of two types (Fixed mortgage rate for real estate, 2010).

1) Fixed mortgages for 30 years: This is the most preferred fixed rate mortgage, since for thirty years the amount to be repaid per month remains the same. The disadvantage is that if the bank’s variable interest rate falls below the fixed rate, the borrower would be at a loss. Also, for the risk taken for 30 years the lender might charge a higher interest rate.

2) Fixed mortgages for 15 years: The conditions for this mortgage are the same as for 30 years. The difference is that the repayment period is only 15 years. Therefore the interest rate would be lower compared to the former. When a mortgage loan of thirty years is to be refinanced (remortgaged) then this type of product is preferred by the borrowers. As a rule, the equity of the property under mortgage would be increasing. So more amount could be obtained as loan during refinancing.

Depending on the lender, interest rate generally varies from 5 to 6% for an initial period which varies from 3 to 5 years. Later on, interest rate would be between 7 to 8%. About 95% of the value of property would be given as loan. There are some lenders, who keep the interest rate same throughout the period of repayment, but the amount available as loan would be only about 85% of the value of property. (Mortgages – Compare Best Fixed Rate Mortgages, 2010). Fees for arranging loan vary from ₤900 to ₤1000.

Which fixed mortgage should you go for?

This depends on your individual situation and requirements. For instance, what kind of loan-to-value are you looking for? The higher the LTV, the higher the rate of interest. Your credit score also determines the rate of interest charged by the lender. The term of the loan also has a bearing on the rate of interest. All factors considered, the best fixed mortgage for you is the one that gives you enough money and a repayment plan that does not strain you.

Conclusion

So, it could be seen that two types of fixed mortgages are there, for 30 years and 15 years. Both are having their own advantages and disadvantages. For both cases, the repayment conditions and even the interest rate offered by different lenders vary. Therefore, the borrower has to make a study of the lenders who offer the mortgage in order to take correct decision. Therefore, the borrower has to make a study of the lenders who offer the mortgage in order to take correct decision. Read the fine print too before committing to a particular mortgage. As the saying goes “The devil is in the detail.”