Pro1 – Peace of mind and a good nights sleep. You are protected against rapid interest rises.
Pro2 – Consistent monthly payments. They stay the same every month.
Pro3 – Budget control – knowing what you have to pay out each and every month can be extremely useful, especially for those on a tight budget.
Pro4 – You cancel any risk. Having a fixed rate mortgage does away with any fear or anxiety you may have by rising interest rates.
There was a time in 1988 when interest rates rose by over 10%. Leaving those without fixed rate mortgages paying more than double their normal payment. Not a nice thought.
Pro5 – Low cost – Besides the security of a fixed rate mortgage you are generally offered this type of mortgage at a lower interest rate than the SVR (Standard Variable Rate).
There are your pros now get ready for the cons.
Con1 – They come with redemption penalties. And they are usually 6 months payments if you redeem the mortgage or move house. Nasty!!
Con2 – Prisoner in your own home – A redemption penalty is activated if you want to move home and move lenders. If the redemption penalty is a load of money it could entrap you in your own home like a prisoner.
Con3 – Cash loss. You will have to pay around 6 months mortgage payments as fees if you want or need to move house. A lot less to put down on the new house than you’d like.
Con4 – An increase at the end. You are faced with the prospect of suddenly having to pay more when you go on the lenders SVR when your fixed rate mortgage abruptly stops.
Con5 – Set up charges – There is usually a set up charge for a fixed rate mortgage that you will have to pay the lender.
Con6 – Interest rate changes. If rates can go up, they can drop too. It’s not nice if you are paying more (sometimes much more) than those on SVR mortgages.
Summary: More cons than pros but despite that my advice is to go for a fixed rate mortgage if you can be certain that you won’t need to redeem the mortgage before the fixed period ends. If so then you can give yourself peace of mind with a fixed rate mortgage.
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