In a higher interest rate environment, many homeowners are faced with the dilemma of whether to stay on their standard variable rate (SVR), switch to a tracker or choose to fix their mortgage. With the current economic climate and the uncertainty around interest rates, this can be a tough choice to make. In this post, we’ll take a look at the pros and cons of fixing your mortgage, so you can make an informed decision.

Fixed rate mortgages

Firstly, what does it mean to fix your mortgage? A fixed-rate mortgage is a type of mortgage where the interest rate remains the same for a set period, usually between two and five years. During this time, your monthly repayments will also remain the same, regardless of any changes to the Bank of England base rate.

So, should you fix your mortgage? Let’s take a closer look at the benefits and disadvantages of fixing your mortgage:

The benefits of choosing a fixed rate mortgage

  • Predictable repayments: One of the main benefits of a fixed-rate mortgage is that your repayments will remain the same for the duration of the fixed term. This can be helpful if you’re on a tight budget and want to know exactly how much you’ll be paying each month.
  • Protection against interest rate rises: If you fix your mortgage, you’ll be protected against any interest rate rises during the fixed term. This can be a big advantage if you’re worried about your monthly repayments increasing. Fixing your mortgage can provide peace of mind, knowing that you won’t be hit with any sudden increases in repayments.

The disadvantages of choosing a fixed rate mortgage

  • Potential higher costs: Fixed-rate mortgages may be more expensive than choosing a variable rate mortgage if the rates fall during the fixed period.
  • Limited flexibility: Once you’ve fixed your mortgage, you’re locked into that rate for the duration of the fixed term. This means you won’t be able to take advantage of any interest rate drops during this time. If you decide to pay off your mortgage early, you may be hit with early repayment charges. These charges can be significant, so it’s important to factor them into your decision.

How long should I fix my mortgage for 2024?

Choosing how long to fix your mortgage for is situational and largely determined by an individual’s circumstances. With the change in mortgage product pricing recently, it’s important to consider where you believe the direction of the economy and rates in the future will go, including where the base rate will peak and how fast this rate will fall.

Should I fix my mortgage for 2, 3, 5, or 10 years?

Deciding whether to fix your mortgage for 2, 3, 5 or even more years can be a difficult decision, as it will depend on your individual circumstances and your appetite for risk.

If you’re looking for certainty and peace of mind, a 5-year fixed rate mortgage may be the right choice for you. With a longer fixed term, you’ll have predictable repayments for a longer period, protecting yourself against any potential interest rate rises. Additionally, some lenders offer more borrowing power to those choosing longer-term fixed rates, which could be beneficial if you need to borrow a larger amount. While some borrowers may opt for an even longer fixed period of 10-years, a 5-year fixed mortgage is a more popular choice.

On the other hand, a 2- or 3-year fixed-rate mortgage could be a more suitable option for a borrower who wants certainty over their repayments but also believes mortgage rates will decrease once the fixed period has ended. You’ll have the option to re-evaluate your mortgage after 2 years and potentially take advantage of any interest rate drops. However, with shorter-term products, it’s important to consider the extra fees involved. Taking a longer-term fixed product means you can stretch these costs over a more extended period.

Ultimately, the decision between a 2- or 5-year fixed rate mortgage will depend on your personal circumstances and financial goals. It’s always a good idea to speak to a professional mortgage advisor who can help you weigh up the pros and cons of each option and make an informed decision based on your individual needs.

Should I get a fixed or variable rate mortgage?

There’s no one-size-fits-all answer whether someone should take a fixed or variable rate mortgage. In a frequently changing mortgage market, it can be an especially tough time to know which option is best. We look at some of the benefits to variable rate mortgages below.

Variable rates: Tracker rates, discount variable rates and standard variable rates

The benefits of a variable rate mortgage

Variable rate mortgages are useful because they can offer borrowers the opportunity to take advantage of changing interest rates and potentially save money. With a variable rate mortgage, the interest rate can fluctuate based on changes in the economy or the financial market, which means that the borrower’s monthly payments may increase or decrease over time.

In addition, variable rate mortgages typically offer more flexibility than fixed rate mortgages, as borrowers may be able to make additional payments or pay off their mortgage early without incurring penalties. This can be particularly useful for borrowers who expect to receive a windfall or who want to accelerate their repayment schedule.

The disadvantage of a variable rate mortgage

However, it’s important to note that variable rate mortgages also carry more risk than fixed rate mortgages, as borrowers may be exposed to rising interest rates that could increase their monthly payments. Borrowers should carefully consider their financial situation and their ability to manage potential changes in their mortgage payments before choosing a variable rate mortgage.

Is a tracker mortgage a good idea now?

There is an equilibrium point where a tracker would have been a better choice cost wise than choosing a fixed rate, and a borrower should analyse the cost comparison. It’s also essential to make sure you can cover the potential cost increases quickly, as we have seen how quickly rates have increased in the past.

Discount variable rates

Discount variable rates are often forgotten as another variable rate option, mostly available from many building societies. This might be a less volatile option than a tracker rate as lenders don’t always pass on increases to the base rate onto their standard variable rate.

Remortgaging in 2024: Should I fix now or wait?

So, should you fix your mortgage? Ultimately, the decision will depend on your individual circumstances and your appetite for risk. In short, if you want predictable repayments and protection against interest rate rises, fixing your mortgage could be a good option. There are pros and cons to fixing for 2-, 3-, 5- and 10-years. Likewise, if you’re looking for flexibility and lower initial costs, a variable-rate mortgage may be more suitable.

If you’re still unsure, it’s always a good idea to speak to a professional mortgage advisor who can help you make an informed decision. Whatever you decide, remember that your mortgage is a long-term commitment, so it’s important to choose the option that’s right for you.

Speak with an expert now or email info@privatefinance.co.uk

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Please remember that your home may be repossessed if you do not keep up repayments on your mortgage.

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