A fixed rate mortgage means your mortgage repayments are protected from an increase in interest rates during the term of the fix. The rate might be set slightly higher than a variable interest rate. Because monthly payments are pre-determined, customers know exactly what is being paid out every month.
Fixed-rate periods are not for the whole length of the mortgage. Instead, customers are offered the choice of fixing at 1, 3 or 5 year periods. The rate differs every time and the longer the period the mortgage is fixed for, the higher the interest rate will be.
On the other hand, a variable interest rate adjusts your mortgage repayments month on month. The payments vary in line with the rate of interest as determined by your mortgage provider. While it can be a clear financial advantage to opt for a variable interest when rates are low, prices can fluctuate up, as well as down.
If you’re taking out a variable interest rate mortgage you’re advised to calculate repayments at a variety of higher rates. This will check that you can afford the payments if interest rates rise.
So, in a nutshell, the fixed rate guarantees the amount you pay monthly for a set period. And a variable rate means monthly mortgage repayments are subject to change.
So, variable interest rate or fixed?
Which is the best choice for you? There is no right or wrong answer, your choice depends on circumstance. But taking independent mortgage advice is a straightforward way to navigating the pros and cons of both types of mortgage.
At A Miller Financial we offer impartial unbiased mortgage advice based on the information you provide us about your circumstances. Our advisers are on hand to help you choose between fixed and variable interest rate mortgages and to answer any of your mortgage questions.