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A
fixed rate deal is a mortgage that has a set agreed unchanging
mortgage interest rate for a given term. This in some deals
can
be over the whole term of the loan but will generally be over
a 2, 3 and 5 year period this type of mortgage product will
generally have early repayment charges that the lender will
charge if the mortgage is redeemed within the incentive period
and within any period that these charges would apply.
The
length of the fixed rate may generally have early
repayment charges that can even run beyond the set
period. After which the fixed rate will revert to the lenders
standard variable rate which is normally a higher rate.
Penalties may be quite high to ensure the lender keeps you
in the deal for a certain time. Fixed deals now can even come
with flexible features such as over and under payments and
payment holidays which can be very advantageous to the borrower
if used correctly. The payment holiday and over and
underpayments
are usually associated with a flexible mortgage but may be
a feature of some flexible fixed mortgage products.
Fixed
rates may generally be set higher than what the lender believes
the base rate will reach within the fixed period. Fixed rates
are a type of insurance which protects you from rising base
rates though you will not benefit if rates fall. Fixed rates
may help you manage your finances, set your budget and are
recommended if you cannot afford a base rate rise.
Some
people prefer a fixed rate as it gives them peace of mind
and they do not have to worry about fluctuating interest rates.
Some deals for eample a remortgage potentially may come with
free legal costs and valuation. It should be note however
that you potentially may be trapped with an uncompetitive
deal until the fixed period ends. Also you may have to pay
an application fee and arrangement fee.
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