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Everything you need to know about fixed-rate mortgages

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If you’re thinking of buying a house and applying for a mortgage, you may have come across the term ‘fixed-rate mortgages’ (FRM).

A fixed-rate mortgage is a mortgage loan where the interest on a mortgage remains the same for a set period of time. As a result, repayments remain the same, making it easier to budget and understand how much you need to pay.

Here, we’ll tell you everything you need to know about fixed-rate mortgages—from the pros and cons to how to get one and how much they cost. We’ll also explain how Adjoin Homes’ rent-to-own schemes compare to fixed-rate mortgages.

Why choose fixed-rate mortgages?

Fixed-rate mortgages are popular products for consumers who want to know how much they need to pay towards their mortgage each month. 

If you’re a first-time buyer or you’re only just affording your mortgage repayments, fixed-rate mortgages provide stability and protection from fluctuating interest rates. If interest rates were to rise, you won’t ever be pushed over the brink. 

In recent years, interest rates have been historically low in the UK and EU but have risen in recent months with further rises expected. Those with fixed-rate mortgages are temporarily protected from these hikes.

How long your fixed-rate mortgage is fixed depends on the type of deal you choose but it can range from one to 10 years, with two-year and five-year deals being the most popular option. Think carefully about how long you want your mortgage to be fixed — leaving your deal before the initial period ends can incur early repayment charges.

Pros and cons of fixed-rate mortgages

Like anything, there are pros and cons of fixed-rate mortgages. On the plus side, they:

  • Provide certainty and stability: As fixed-rate mortgage repayments are the same each for the duration of the term, you’ll always know how much you’ll need to pay. 
  • Allow you to budget more easily: Because you’ll always know how much you need to pay, fixed-rate mortgage repayments can help with monthly budgeting and future planning.
  • Protect you from rising interest rates: If interest rates or your lender’s standard variable rate were to rise, your monthly repayments won’t be affected. The longer your fixed-rate mortgage term is, the longer you’re protected from price increases.

But there are also disadvantages to fixed-rate mortgages. They can:

  • Be more expensive than other mortgages: Even though your monthly repayments won’t go down or up, they could be higher than variable-rate mortgage repayments.
  • Limit your flexibility: If you’re looking to get out of your mortgage deal before the end of the term and want to make early repayments, you’ll likely incur expensive charges.
  • Prevent you from benefiting from interest rates going down: Fixed-rate mortgages may protect you from rising interest rates, but this also means that you won’t benefit from falling interest rates. If they were to drop, your repayments will stay the same. 

How do you decide how long to fix them?

As we mentioned above, fixed-rate mortgages can vary in length from one to ten years. To find a mortgage solution that best suits your situation, think about your budget and how long you’ll likely stay in the property. These are two important factors in working out the best fixed-rate mortgage length for your circumstances.

Short-term fixed-rate mortgages (1 or 2 years): As shorter fixed-rate mortgages are less risky for the lender, they’ll likely be cheaper. They’ll also provide you with flexibility should you decide to move house in a few years, saving you from early repayment fees for exiting your contract early. And if you do incur penalties for early mortgage repayments, they won’t be as high as they would be with longer-term fixed-rate mortgages.
Long-term fixed-rate mortgages (5 or 10 years): Since longer-term fixed-rate mortgages are fixed for a longer period of time, they provide more security, certainty and protection against higher monthly repayments should interest rates rise. They’ll also save you from the

hassle of switching mortgage deals every couple of years and the fees that go with doing so. As a result, they may work out cheaper over time. Long-term fixed-rate mortgages are a good option if you don’t plan on moving anytime soon.

What are the requirements for fixed-rate mortgages?

In order to apply and be approved for a fixed-rate mortgage, your mortgage broker or lender will ask you a few questions to determine your mortgage eligibility and affordability. This is to make sure that you’ll be able to afford your mortgage repayments. Our ‘Everything you need to know about mortgage eligibility’ guide has more information on this.

To summarise, you’ll be asked questions about your income, monthly outgoings, spending habits and any outstanding debt. Based on this information, brokers, banks and lenders will be able to evaluate whether you’ll be able to afford your monthly mortgage repayments. 

How much will it cost you to get a fixed-rate mortgage?

The cost of a fixed-rate mortgage depends on the amount you owe on your property, the length of your mortgage deal and whether you are on a repayment or interest-only plan. 

The table below shows an example of fixed-rate mortgage repayments based on a property value of £250,000, a deposit amount of £25,000 and a 25-year repayment plan. Remember, shorter-term fixed-rate mortgages tend to be cheaper because they’re considered less risky for the lender.

Initial Interest Rate Monthly mortgage repayments Mortgage amount Total mortgage cost (including interest)
1.9% (2-year fixed) £942.00 £225,000 £282,600
2.2% (3-year fixed) £975.00 £225,000 £292,500
2.4% (5-year fixed) £998.00 £225,000 £299,400
Table: Example of fixed-rate mortgage repayments for a property value of £250,000, a deposit amount of £25,000 and a 25-year repayment plan.

How Adjoin Homes compares

While fixed-rate mortgages may protect you from rising interest rates, they also prevent you from benefitting from a drop in your monthly repayments should they fall. In addition, they require you to go through the traditional house purchase and mortgage approval process. Even if your salary is high, you may struggle to buy a house in the area of your dreams.

Fixed-rate mortgages also don’t provide you with much flexibility—if you were to decide to move house and exit your mortgage deal before the term ends, you’ll incur expensive fees.

If flexibility is something you’re looking for, our rent-to-own schemes can help. We provide tailored packages and payment plans to suit your circumstances. At any point in your agreement and for up to 12 years, you can choose to purchase your property or walk away if you change your mind. There’ll be no hefty fees to pay as a result.

In Summary

Fixed-rate mortgages have their benefits and disadvantages. But thanks to rising house prices, it can be difficult to buy in certain areas and get approved for a fixed-rate mortgage. 

Adjoin Homes’ rent-to-own schemes offer the perfect solution, allowing you to get into your dream home now and providing you with flexibility should your circumstances ever change.

Getting into your dream home is now a possibility.