What’s a fixed-rate mortgage

What are the benefits of a fixed rate mortgage? The lender agrees to give you a short-term special rate. Regardless of what happens to interest rates, with a fixed mortgage your repayments are fixed for the length of the deal.

Lenders call this the incentive period – and all fixed deals will have one, whether it’s two, three, five, 10 or 15 years. Sometimes it’s even possible to find fixed-rate deals that last for the life of your mortgage.

Like all mortgage deals, fixed rates have pros and cons:

  • Certainty – you know exactly what your mortgage will cost.
  • Your payments won’t go up over the life of the fix, no matter how high rates go.
  • You’ll know EXACTLY what you’ll pay, meaning you can budget around it.
  • If interest rates fall, you won’t see your payments drop.
  • If you want to get out early, you’ll usually pay high penalties.

If a fixed mortgage sounds good, think carefully about how long you want to fix for. Ideally, you don’t want to leave the deal before the initial period ends, as there’s usually an early repayment charge, which can add significantly to your costs.

What is a variable rate mortgage?

Here your mortgage rate, as the name suggests, can and will usually move up and down. The major, but not sole cause of this, is changes to the UK economy.

In times of growth and inflation, interest rates tend to go up to discourage spending (as is happening right now). This is to make saving more attractive and borrowing costlier – meaning people are less likely to borrow to spend. In downturns, interest rates are often cut to encourage spending.

To complicate things, variable rate deals fall into three categories: trackers, standard variable rates (SVRs) and discounts. This is how they work:

Tracker mortgages

Here, the rate tracks a fixed economic indicator the bank base rate, the Bank of England’s official borrowing rate. This doesn’t mean it’s the same as the base rate, just that it moves in line with it.

Tracker mortgages are popular in times of low or falling interest rates (which isn’t the case right now). Here are the pros and cons:

  • It’s transparent as you’ve the certainty that only economic change can move your rate, rather than the commercial considerations of the lender.
  • Flexibility, ability to make overpayments or switch products generally without penalty.
  • Uncertainty – if rates rise, so will yours.
  • You’re also locked into a fixed relationship, so if you’re paying a rate several percentage points above the base rate and interest rates jump, it could mean huge future costs.

Tracker mortgage rates usually track above the base rate. For example, a tracker mortgage might track at the base rate (currently 2.25%) plus 1%, so that would be 3.25%. Currently, the best tracker mortgage rates you’ll find are around the 3% mark. However, if the base rate was to increase by one percentage point, so would your mortgage.

My Mortgage Experts & Protection Experts Ltd (FCA 937076), is an Appointed Representative of King Mortgages Ltd.

King Mortgages is authorised & regulated by the Financial Conduct Authority (FCA). King Mortgages Ltd is entered on the financial services register http://register.fca.org.uk/ under reference number 803561.

The information contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.

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      Automatic Property Value Updates

      Changes in property value, coupled with a potential reduction in your loan amount (with a repayment mortgage), mean a change in the equity available in your property (Loan to Value); hence there could be improved opportunities for a better mortgage for you.

      Product Expiry Date

      Sussed will track when your mortgage is due to expire (usually when your mortgage payments rise substantially as you will automatically transfer to your lender’s standard rate).

      The app will alert you when it’s the right time to discuss your options with your mortgage broker.

      Sussed can help you plan.

      Rate Riser

      This feature is ideal for today’s economy and increasing prices. Sussed will continually scan the market, looking for the best-fixed rates available, especially when interest rates are rising.

      Using a series of algorithms, our clever technology can identify longer-term fixed rates available today that could save money against predicted rates at the end of your current product term (including the cost of transfer) – sussed is doing all the hard work.

      Equity Available

      With automatic property value updates and your Mortgage information loaded, this feature calculates the amount of equity and the maximum potential loan that may be available within a landlord’s portfolio. This will assist with seeing if there is the opportunity for to perhaps buy another property from leveraging your portfolio.

      Within sussed, you will also be able to see each of your properties with a roadside picture, a confirmed property value, monthly rental, current mortgage balance, payments, interest rate and the Loan to value/Gross rental yield.

      Sussed can help you manage your portfolio.

      Early Review

      This feature is there waiting for interest rates when they reduce. Using the same technology as Rate Riser, sussed will identify if your current deal is now able to be improved.

      Should the interest rates decrease, sussed will compare deals available on the day with your existing deal and flag if there is an opportunity for you to save money by switching.

      Regional Price Limits

      There are price limits on homes you can buy with an equity loan. The limit is different for each region in England.

      • East - £407,400
      • East Midlands - £261,900
      • London - £600,000
      • North East - £186,100
      • North West - £224,400
      • South East - £437,000
      • South West - £349,000
      • West Midlands - £255,600
      • Yorkshire and the Humber - £228,100

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