Before we get into why a fixed rate mortgage is good for you, let’s talk about the downsides to them. There’s always a downside isn’t there?
If you move house or change lender you get hit with redemption penalties. You might have an extra child or need to move house. Any of these would cost you.
There’s a nasty thing called a setup charge. Why they exist I don’t know. We have to shell out for them and they look like they’ll be around for a long time.
Possible sharp increase when the deal ends. As you’ve been on a fixed rate for a period there’s a chance of a sharp rise when the deal finishes as you go on a normal variable rate.
Lady luck may be on your side and the rate may have fallen slightly. Your new payments would be lower. Sweet.
During the deal you could end up paying way more than other people if rates drop over a period of time. Hard to take but not a lot you can do about it.
Of course the complete opposite could happen and the rates may rise. Great position to be in if this happens.
All that said lets list what I think are the 5 most beneficial things about a fixed rate mortgage for you.
1) Sleep soundly knowing that next months payments will be the same as this months. No nasty payment hikes.
2) The same monthly payment gives you the confidence of knowing exactly where you stand financially.
3) Budget control. Knowing what you have to shell out leaves those on a tight budget much better control.
4) You have no risk, and having no risk does away with any worry you may have on a variable rate mortgage.
5) The actual interest rates are often slightly lower with fixed rate mortgages than normal SVR’s. Making them cheaper.
To finish up I think fixed rate mortgages are a better bet than an SVR one. There’s pros and cons with each but you won’t get a shock with rises that have happened in our recent past. The rate once shot up by over 10% in a little over a few months.
This could mean double your payments in just a few months. You wouldn’t just be losing sleep here, you could potentially be losing your home as well. Nasty.
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