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Fixed Rate Mortgages

A fixed rate mortgage is, as the name implies, one on which you have a mortgage that is at a fixed, or set, rate. In other words, this means that you know exactly what you will be paying.

The main reason to take out a fixed rate mortgage is so that there are no nasty surprises - if the interest rate goes up, then you can sit smugly and safe in the knowledge that it is not going to affect your ability to repay the mortgage.

Therefore if the amount of the mortgage could be a problem for you if interest rates rise and you need the peace of mind of knowing that you will always be able to pay off your monthly mortgage no matter what happens to interest rates (assuming that you keep your current job or financial circumstances etc) then this could be an attractive type of mortgage product for you.

Usually the fixed rate applies for a certain time at the start of the mortgage, and typically this would be around 2, 3, or 5 years. There may be charges for remortgaging during that period so this is something to consider if you are thinking of taking out this product.

So, there are clear benefits to this type of mortgage. You know exactly what you will pay each month and this enables you to budget, which is harder to do on a variable rate where mortgage payments could go up hundreds of pounds on a reasonable size mortgage if interest rates go up a couple of percent over the course of a given time period, but here you have peace of mind.

So what is the downside? Well, of course, if interest rates fall then you will not cash in on the benefit of that and whilst everyone on variable rate mortgages will enjoy the relief of having more cash in their bank at the end of each month as their mortgage payments fall, you will still be paying your fixed rate. You are also locked in for the period of the fixed rate (unless you want to risk the fees that are usually in place, called early repayment charges). Also if you remortgage later there are usually fees to pay then too.

This type of mortgage could be seen as a form of insurance against interest rates going up; you may end up paying more but you do get the peace of mind that interest rate rises will not affect you should they occur, and you live with the downside that overall you will be paying probably more than short-term fixed rates and that you won't get the benefits of interest rates falling. For many this is a price worth paying for peace of mind, and so fixed rate mortgages remain a viable option for many.

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