What is a fixed rate mortgage?

What is a fixed rate mortgage?

A fixed rate mortgage is where your repayments are set for a specific amount of time. This can be for as little as two years, up to 25 years or more. This means your monthly payments won’t change during that time, making it easier to budget.

With a fixed rate deal you’ll always know what you need to pay each month during the fixed interest period. Compared to variable or tracker rate mortgages, where your payments can change based on the Bank of England's base rate, your payments won’t change no matter what happens to interest rates.

How does a fixed rate mortgage work?

With a fixed rate mortgage, you’ll have a specific interest rate that you will be charged every month for as long as your mortgage term lasts. This means your mortgage repayments will stay the same every month.

What happens at the end of a fixed rate mortgage?

When your fixed rate mortgage ends, you’ll usually move onto your lender’s standard variable rate (SVR). This interest rate is almost always higher than your previous fixed rate. To avoid this, you can start looking for a new mortgage deal around 4 – 6 months  before your fixed term ends.

However, most fixed rate deals come with an Early Repayment Charge (ERC). This means that if you want to leave the deal early, they’ll charge you a fee. This is normally between 1% and 5% of the remaining loan amount but it can also be a fixed fee, so you should factor this in if you end up moving house or changing your mortgage sooner than planned.

Fixed vs variable rate mortgages

Fixed rate

Your payments stay the same for a set period.

Variable rate

Your payments can change, depending on interest rates.

Variable rate mortgages are often linked to the Bank of England base rate. If the base rate goes up, then you’ll pay more. If the base rate goes down, your payments could get cheaper.

Advantages and disadvantages of a longer term fixed rate deal

Advantages

• Peace of mind for longer
• Payments won’t change
• No need to remortgage soon
• Easier to budget
• Often portable if you move

Disadvantages

• You’re tied in for longer
• You won’t benefit if rates fall
• Early repayment charges  apply if you leave early
• Extra borrowing could be more expensive
• You’ll need to meet the lenders criteria again if porting

Fixed rate mortgage process

Many fixed rate mortgages are portable, so if you move, you might be able to take your deal with you. However, this will depend on the specific mortgage deal. Your L&C mortgage adviser can help you find the right deal for you.

Fixed rate FAQs

Should you get a fixed rate mortgage?

If you want the peace of mind of knowing exactly what you’ll pay each month, a fixed rate mortgage could be a good option. It’s also a popular choice if you’re worried about interest rates rising.

What happens when your fixed rate deal ends?

Once your fixed term finishes, you’ll usually move onto your lender’s standard variable rate (SVR), which is likely to be higher. To avoid paying more than you need to, it’s a good idea to look for a new deal before your current one ends.

Can you leave a fixed rate deal early?

Yes, but you’ll usually have to pay an Early Repayment Charge. This can be quite expensive, so it’s worth checking the small print before you sign up.

Can you move house during a fixed rate?

Yes, but it might come with early repayment charges. Some fixed rate mortgages are portable, which means you might be able to move the deal to your new home. You’ll need to speak to your lender and meet their usual checks.

Can you remortgage on a fixed rate mortgage?

If you want to remortgage before your fixed rate mortgage deals ends, you’ll likely face an ERC. However, you can start looking for your next deal up to six months before your fixed rate ends. This means you can move straight onto a new deal and avoid the SVR.