Is the Time Right to Get a Fixed Rate Mortgage?
Reduce Monthly Repayments with the Latest Mortgage Deal
Feb 13, 2009
Falling interest rates mean that, at 0.5%, they stand at their lowest level in 300 years. This has resulted in monthly repayments falling to a fraction of what they were 12 months ago. Is now the right time to identify the latest mortgage deal?
What is a Fixed Rate Mortgage?
A fixed rate loan involves agreeing to pay a pre-determined amount of interest for a set number of years. They provide financial stability because a family knows precisely what monthly repayments need to be made.
How the Latest Mortgage Deal Benefits a Family
Only those that have reached the conclusion of a mortgage deal should consider taking out a fixed-rate mortgage. Although a borrower may be able to reduce monthly repayments, coming out of a loan prematurely will result in the borrower paying a costly early redemption penalty. This can amount to thousands of pounds.
Once the existing mortgage deal reaches a conclusion, a borrower will move to standard variable rate. This works in a similar way to tracker deal in the sense that it mirrors movements in Bank of England base rates. However, standard variable rate mortgages usually have a higher margin which is approximately 2% above base rates.
Taking out a fixed-rate loan may not save a family money in the short term. With Bank of England base rates at 0.5%, this cannot be bettered. However, a borrower stands to benefit from reduced monthly repayments over the medium term. Whilst falling interest rates are currently a reality, this trend won't last forever.
Will a Bad Credit Fixed-Rate Mortgage Reduce Repayments?
Bad credit deals have become fewer in number. Having poor credit will mean that a fixed-rate loan isn't as competitive as it would be for a good credit customer. This means that, if adverse credit has become a problem over the term of an existing deal, the borrower may find that staying on a standard variable rate may actually keep their monthly repayments lower.
Will a Mortgage Broker Help?
A mortgage broker will charge a fee of about 1% of the amount borrowed, but helps to reduce monthly repayments by considerably more. Always utilise the service of an independent broker and not a tied-agent as they will be able to trawl the entire market for the best deal. There are hundreds of mortgage deals available and tracking down the most competitive deal can be a difficult task.
Getting a fixed-rate mortgage won't lower monthly repayments in the short term. However, those getting one can reduce monthly payments in the medium term when interest rates start to rise. First-time buyers and those with bad credit may wish to utilise the services of an independent broker to secure the best mortgage deal.
Those that found this article useful may also wish to read about Fixed Rate Mortgages - Pros and Cons and Standard Variable Rate Mortgages - Pros and Cons.
