Fixed Rates

A fixed rate mortgage can be good or bad. It is worth considering that the mortgage company will set their fixed rates in the hope that they will do well out of it. This means that they will be predicting the future market and fixing that rate accordingly.

It is difficult to predict the future, but it is likely that they will be able to do a better job of it than us. It is still worth giving it some thought though. The main reason for fixing for customers is that they has the same payments going out each month. They will know exactly how much they will have to pay and therefore there will be no nasty shocks with regards to payment amount. However, you may find that had you stuck to their variable rate, you could have ended up paying less over that fixed rate period.

Examples of this are when people signed up to a 6% interest rates 3 years ago, thinking they could make a saving, having not predicted that the base rate would fall so much and so they are paying way over the odds. However, if you fix at a low rate and the market rises, then you are better off.

Some mortgage companies will tie you in if you make this sort of deal and state that you have to stay with them during the term of the fixed rate and afterwards for a certain time period while they  put you on their variable rate. This could mean that you save money in the fixed rate period and then lose money in the variable rate as you may have found a better deal elsewhere.

It is always a gamble and the best reason for going for a fixed rate is if you need to know how much you are paying each month. This is because trying to predict future base rates is almost impossible and so it is better to just go the best deal in the present time and hope that it continues to be the best deal. Also if you do tie yourself in to a fixed rate, consider how long to do this for as a shorter period might make more sense.