Fixed rate mortgages guide
What is a fixed rate mortgage?
A fixed rate mortgage enables you to fix your mortgage at a set interest rate for a specified period.
The main benefit of this type of mortgage is that you’ll know exactly how much your monthly repayments will be for the fixed rate period.
Whatever happens to interest rates during this time, whether they go up or down, your payments will remain the same. This can be a big help with monthly budgeting and provide valuable peace of mind that you won’t suddenly see your payments increase if interest rates rise.
There’s a wide range of fixed mortgage rate deals to choose from, with fixed terms ranging from two up to 10 years, or sometimes longer. The interest rate you’ll pay varies depending on how long you fix your mortgage for. As a general rule, the longer you fix for, the higher the rate will be.
At the end of the fixed rate period, you will usually be transferred to the lender's standard mortgage rate, known as the standard variable rate or SVR. This may be higher than the fixed rate you were paying, so you may decide to lock into another fixed rate deal when your current fixed mortgage rate finishes.
It is possible to secure a new deal even if you’re currently tied into another mortgage. Many mortgage offers are valid for several months from the date they are issued, so you can go straight from one deal to another if you want to.
Best fixed rate mortgages
The best fixed rate mortgages tend to be snapped up quickly, so you’ll usually have to act fast if you see a deal you like.
The best fixed rate mortgage for you will depend on how long you want to fix for, whether you want the flexibility to make overpayments, how long you plan to stay in your current home, and whether your circumstances or finances could change in the next few years.
When choosing a fixed rate deal, don’t focus on the headline rate alone. You should factor in all set up costs to work out which deal will be the most cost effective for you.
If your mortgage is relatively small, you may prefer to choose a fixed rate mortgage with a slightly higher rate and a low or no fee. If you’re borrowing a large sum, you may find it more cost-effective to go for a fixed rate mortgage with a lower rate and a fee. If you’re uncertain, seek advice on the best fixed rate mortgage to suit your individual circumstances.
2 year fixed rate mortgages
A 2 year fixed rate mortgage is a mortgage where the interest rate you pay is fixed for 2 years.
Your monthly payments won’t change during this 2 year period, even if interest rates rise or fall.
Shorter term fixed rate deals tend to cost less than longer term fixed rate mortgages, so 2 year fixed rate mortgages are often considered to be the cheapest fixed rate deals available.
They are likely to suit you if you only need budgeting certainty for a short period of time. A 2 year fixed rate mortgage may also appeal to you if you’re planning to move in a couple of years, and may perhaps need a bigger or smaller mortgage at that point.
3 year fixed rate mortgages
A 3 year fixed rate mortgage is a mortgage where the rate and your monthly payments are fixed for 3 years.
Fixed rate mortgages which are fixed for 3 years after often cheaper than 5 or 10 year deals, so may appeal to you if you’re keen to keep monthly costs to a minimum. If you choose a 3 year fixed rate mortgage deal, rates are likely to be slightly higher than those offered by 2 year fixed rate mortgages. The best 3 year fixed rate mortgage for you will depend on your individual circumstances, so seek professional advice if you’re unsure.
After the 3 year fixed rate mortgage period finishes, as with other fixed rate deals, the mortgage will usually revert to the lender’s standard variable rate (SVR).
5 year fixed rate mortgages
A 5 year fixed rate mortgage is a mortgage which has a rate that remains the same for 5 years.
When you lock into a 5 year fixed rate mortgage, you have peace of mind that your monthly payments won’t change during this period, regardless of what happens to interest rates.
Rates on 5 year fixed deals tend to be slightly higher than for shorter term fixed rate mortgages, because they provide homeowners with budgeting certainty for a longer period of time.
The best 5 year fixed rate mortgages may come with higher arrangement fees, so it’s important to factor these in when working out the overall cost of any deal.
If you’re planning on moving within the 5 year fixed rate mortgage period, check that any deal you’re considering signing up to is portable and so can be transferred to a new property.
10 year fixed rate mortgages
A 10 year fixed rate mortgage is a mortgage where both the rate and your monthly payments are fixed for 10 years.
Longer term 10 year fixed rate mortgages tend to be a bit more expensive than 2, 3 or 5 year fixed rate mortgages, but you’ll have certainty that your payments won’t change for longer. The best 10 year fixed rate mortgages for you will depend on how much flexibility you’re likely to need over the next decade.
Some 10 year fixed rate mortgages are portable, so you may be able to transfer your deal to a new property if you move home during the fixed rate period. You will have to re-apply for your mortgage however, and your lender will carry out new affordability checks, along with a valuation of the new property.
Bear in mind that many fixed rate mortgages charge a penalty if you pay them off before the end of the set period. If you’re considering locking into a 10 year fixed rate mortgage you’ll therefore need to think carefully about whether your circumstances are likely to change over time, or whether you might see a better deal later on.
For mortgage help and information about fixed rate mortgages, or to find the best deal for your individual circumstances, speak to one of our expert mortgage advisers.