Once a base rate tracker or fixed mortgage deal comes to an end, the rate switches to Standard Variable Rate (SVR). This is typically 2% above the Bank of England base rate, possibly a lot higher. It is the right time to search the market for a better offer as there will be no early redemption penalty. Lenders charge a fee for redeeming the loan too early in order to recover their costs. Over the life of the loan, it will be necessary to get a remortgage several times to ensure that the best fixed mortgage deal is always in place.
Short vs Long Fixed Interest Mortgages
The lowest fixed rate mortgage involves paying a set rate of interest and low mortgage payments for the next x years. No matter whether rates rise of fall, the repayment made by the homeowner will remain exactly the same. The longer the fixed term, the higher the APR will be. This is because it is more difficult for financial institutions to determine the direction rates will head in. They charge slightly more in an attempt to hedge the risk posed by a sudden change of direction due to inflationary pressure.
Lowest Fixed Rate Mortgage Means Lower Monthly Repayments
Whilst a base rate tracker is advantageous when rates are low or falling due to economic contraction, a fixed interest mortgage allows a homeowner to lock-in at a certain level before monetary policy changes. Whilst there is always an element of guesswork involved as nobody can accurately predict the future, there are strong indicators that can help. It is possible to make low mortgage payments for the next few years before re-assessing at the end of the loan term.
Reduce Repayments Further with a Fixed Interest Only Mortgage
Although it will be necessary to sell the property or repay the capital at some point, just paying the interest leads to lower monthly repayments. Combined with a fixed interest mortgage, the cost of borrowing is likely to be lower than renting. This provides an opportunity for first time home buyers to get on the property ladder. It may also be useful to switch to an interest only deal if finances are stretched due to a lack of bonuses or an overtime freeze. Homeowners regularly switch between the two to improve affordability.
A Fixed Mortgage Deal Helps with Budgeting
A low rate mortgage not only improves affordability, but it helps fixed income families and first time buyers to budget more effectively. A sudden change in the direction of interest rates, particularly if the correction happens quickly, can lead to affordability issues. This has a number of negative repercussions, including repossession. The lowest fixed rate mortgage provides homeowners with the certainty that, no matter what the Bank of England’s current policy is, repayments will stay the same.