Fixed Rate Mortgages
- Independent Mortgage Advice from an award-winning broker
- No obligation consultations either face-to-face, online or over the phone
- We'll search thousands of mortgages from the whole of the market so you don't have to
What's On This Page?
Get In Touch
Fixed Rate Mortgages
What is a fixed rate mortgage?
A fixed-rate mortgage is the most popular type of mortgage at the moment & has been for several years.
The interest rate is fixed for a pre-determined length of time; typically, this is either 2 or 5 years – however, fixed rates can come in 1,2,3,5,7 & 10 year periods. The longer the fix, the higher the rate as you’re buying more security.
The benefits of a fixed-rate mortgage are that you can budget easily as the mortgage payment won’t change for the length of time you’re in your initial deal. This gives our clients the security they want and allows them to get on with their life & not be worrying about what the mortgage payment will be next month.
Fixed-rate mortgages can often be a little more expensive than variable mortgages as you’re paying for the security you would like. However, they can also come with some benefits such as a free valuation &, in some circumstances, a cashback payment of up to £500 paid on completion.
After the initial fixed-rate period ends, you will typically revert to the lender SVR (standard variable rate), which will often be higher and is the lenders own profitable internal rate. So this is the point at which we would ordinarily contact clients to let them know they’re going to be paying more and then acting, by way of a remortgage, to stop this happening.
So to recap, if you choose a fixed-rate mortgage, your monthly payment will stay the same for a set period, usually two, three or five years. At the end of your fixed-rate, your lender will usually change your interest rate to their SVR. It is a good idea to talk to your adviser at this stage because the lender’s SVR may not be the best deal available.
Advantages:
You know the exact amount you will need to pay each month, making budgeting easier.
In addition, your monthly payment will stay the same during the fixed period, even if other interest rates increase.
Disadvantages:
Your monthly payment will stay the same during the fixed period, even if other interest rates decrease.
However, if you want to repay your loan early, there could be an early repayment charge.
Hopefully, that explains in enough detail what a fixed-rate mortgage is, and if you want any more information, then drop us an email or call, and we can talk through the options available.
Tracker Rate Mortgages
Tracker rate mortgages are mortgages that are not fixed at a certain interest rate. They typically move in line with one of two external rates, either the Bank of England base rate or LIBOR (London inter-bank offered rate).
Tracker rates for residential mortgages usually follow the Bank of England base rate (BBBR) and if the BBBR rises then typically the month after your mortgage rates rises by the same margin and if the BBBR falls again your mortgage interest rate would fall by the same margin.
Normally a tracker rate from the outset will be a specific amount above the BBBR so you might take out a mortgage which says your rate is BBBR + 1.5% for example. This means that the interest rate that you will pay over However it should be noted that most mortgage lenders do have a ‘floor’ contained within them. This means that at the outset of most tracker rate mortgages these days, lenders will say that your tracker rate will not fall below a certain level.
So to recap if you opt for a tracker mortgage, the interest rate charged by a lender is linked to a rate such as the Bank of England base rate. This means your payments may go up or down.
Advantages:
The rate you pay tracks an interest rate (for example, the Bank of England base rate). If the rate changes the tracker rate changes by the same amount.
Disadvantages:
Some lenders impose a ‘collar’ which means the interest rate will not fall below a certain level, even if the rate it is tracking continues to reduce.
Your monthly payments can go up or down which can make budgeting difficult.
If you want to repay the loan early, there could be an early repayment charge.
Hopefully that explains in enough detail what a tracker rate mortgage is and if you want anymore information then drop us an email or call and we can talk through the options available.
Speak To an Expert
Standard Variable Rate (SVR)
What Is A Standard Variable Rate Mortgage (SVR)
A standard variable rate is a mortgage lenders, internal mortgage interest rate. Mortgage lenders choose to set it where they wish and move it in line with the prevailing economic conditions. They sometimes mirror changes to the BBBR, but they don’t have to.
The SVR is what most people will revert to after an initial mortgage deal such as a fixed rate or tracker rate period has ended.
This is a standard interest rate that can go up or down in line with market rates, such as the Bank of England’s base rate.
Advantages:
You have more flexibility and can usually repay your mortgage without early repayment charges.
Disadvantages:
Your monthly payments can go up and down, making budgeting difficult.
In addition, SVR mortgages are not usually the lowest interest rates that lenders offer.
Hopefully, that explains in enough detail what a standard variable rate mortgage is, and if you want any more information, then drop us an email or call. Then, we can talk through the options available.
Discount Variable Rate
What Is A Discount Variable Rate Mortgage (DVR)
Some mortgages start with an initial interest rate set lower than the SVR for a set period of time. At the end of this period, the lender will change the interest rate to the SVR. It is a good idea to talk to your adviser at this stage because the lender’s SVR may not be the best deal available.
Advantages:
Your payments could cost you less in the early years, when money may be tight. But you must be confident you can afford the payments when the discount ends.
Disadvantages:
Your monthly payments can go up or down, making budgeting difficult.
If you want to repay the loan early, there could be an early repayment charge.
Discount Variable rate mortgages
Discount Variable Rates can be useful for certain types of mortgage borrowers
Offset Mortgages
What Is An Offset Mortgage
An offset mortgage is generally linked to a main current account and/or savings account held with the same lender. Each month, the amount you owe is reduced by the amount in these accounts before working out the interest due on the loan.
This means as your current account and saving balances go up, you pay less mortgage interest. As they go down, you pay more. Linked accounts used to reduce mortgage interest payments do not attract interest.
Advantages:
Mortgage payments can be reduced as savings increase, or you may be able to continue paying a higher level and pay your mortgage off early.
You usually pay tax on your savings. However, if your savings are automatically used to offset your mortgage, you will not pay income tax on these savings – this is particularly beneficial for higher rate taxpayers.
Disadvantages:
All accounts have to be with one lender/bank.
You need to have a substantial level of savings. • If you want to repay the loan early, there could be an early repayment charge.
Capped & Collar Mortgages
What Is a Cap & Collar Rate Mortgage
With this type of mortgage, the interest rate is linked to a lender’s SVR but with a guarantee that it will not go above a set level (called a ‘cap’) or below a certain level (called a ‘collar’) for a set period of time. It is possible to have a capped rate without a collar.
Advantages:
You know the maximum and minimum you will pay for a set period of time, making budgeting easier.
These products are helpful if you want the security of knowing your payments can not rise above the set level (the cap), but could still benefit if rates fall during the specified period.
Disadvantages:
Even if other rates fall, your interest rate for the set period will not go below the level of the ‘collar’.
If you want to repay the loan early, there could be an early repayment charge.
