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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