Fixed Rate Mortgages, Pros V Cons
Pro1 - Peace of mind and a good nights sleep. You are protected against rapid interest rises.
Pro2 - Steady payments - same payment every single month so you know exactly where you stand financially.
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 - A fixed rate mortgage is usually cheaper than an SVR (standard variable rate) mortgage as they are usually offered at cheaper rates.
That was the pros, but now here come the cons.
Con1 - Redemption penalties - These are generally 6 months mortgage payments and having to pay out that much money for moving home can hurt. Ouch!!
Con2 - Stuck in your own home. If you want to move home you get hit with a penalty. This can easily make you feel like a prisoner in your own home.
Con3 - Loss of equity - If you want to move home you have less money to put towards your next home. Just imagine having 6 months mortgage payments as a lump sum less to put down on your next house.
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 - Cost to set it up. The lender will nearly always charge you a fee to set up your fixed rate mortgage.
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: In the face of the cons outnumbering the pros I still think a fixed rate mortgage is the way to go. But only if you can be sure you won’t be moving or changing lender during the fixed period. If you can be sure you can have peace of mind with a fixed rate mortgage.