When you apply for a mortgage, it’s tempting just to look at the monthly repayments to see how much it is going to cost you. To get a competitive interest rate, you will need to dig a little deeper. Here is our guide to understanding interest rates and working out if a fixed or variable rate is right for you.

Before we delve into fixed and variable rates, here is a quick summary of the difference between the two.

Fixed Rate: The interest on your mortgage stays the same for a fixed period of time.
Variable Rate: The interest on your mortgage is variable throughout the term of your mortgage.

Fixed Rate Mortgages
Fixed rate mortgages usually run through certain terms of your mortgage and you will often see them advertised as a two year or five year fixed rate. This means that your mortgage interest stays fixed for the amount of time you choose when you take out a mortgage. When the term ends or unless you have agreed another fixed rate deal with your lender, your mortgage will move to a standard variable rate mortgage which means interest repayments will often be higher.

Fixed rate is ideal if you want your monthly repayments to be the same every month for a fixed period of time and the added bonus is that your mortgage won’t go up if interest rates rise during that term. The downside is that if the main interest rates fall, you won’t benefit from it.

Variable Rate Mortgages
If you choose a variable rate mortgage, it can rise and fall at any time alongside the Bank of England base rate. If you do opt for a variable rate mortgage, it’s advisable to have some savings put away for times when the interest rate might rise.  This is usually known as a tracker mortgage.

Variable rate is ideal for you if you plan to eventually sell your home as variable rate deals often have lower or no penalties for breaking a mortgage contract or paying off early. The downside is, your interest rate could rise at any time without notice.

Need some help to work out if a fixed or variable rate mortgage is better for you? We can give you all the facts, the current market information and help you discuss your options and help you arrive at the right decision. Our mortgage specialists are happy to help. Get in touch here.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.