When it comes to choosing a mortgage, it’s important to understand the types of mortgage available to you.

Today we’ll cover the two main types of mortgages: fixed and variable.

A fixed rate mortgage is a loan where the interest rate remains the same throughout the entire loan term.

This means your monthly payments will stay the same, making it easier to budget and plan for the future. On the other hand, a variable rate mortgage has an interest rate that can change over time.

This means your monthly payments may fluctuate, which can make it harder to predict your financial obligations.

It’s important to consider both the pros and cons of each type of mortgage before making a decision. I

In this blog, we’ll go into more detail about the differences between fixed and variable mortgages, and help you determine which one is right for you.

Fixed Rate Mortgages

A fixed-rate mortgage is a type of home loan in which the interest rate remains the same for the entire loan.

This in turn also means the borrower’s monthly payments remain the same for the duration of the loan, as the interest rate does not change.

Lenders typically offer fixed-rate mortgages to borrowers with good credit scores and stable income, as they are considered a lower risk for the lender.

Borrowers with a fixed-rate mortgage may also have the option to make extra payments towards the principal balance of their loan, which can help pay off the loan more quickly and potentially save interest costs over the long term.

Overall, fixed-rate mortgages are a popular choice for homebuyers because they offer the security of knowing exactly what their mortgage payments will be for the life of the mortgage.

The advantages and disadvantages of a fixed rate mortgage

Fixed rate mortgages offer the stability of a consistent monthly payment for the life of the mortgage. This can be particularly appealing for homeowners who prefer the security of knowing exactly what their mortgage payment will be each month, and for those who plan to stay in their home for a long time. 

One of the main advantages of a fixed rate mortgage is that it protects homeowners from potential interest rate increases, which can significantly increase monthly mortgage payments. 

Additionally, fixed rate mortgages may offer lower interest rates compared to adjustable rate mortgages, which can lead to significant savings over the life of the loan.

However, fixed rate mortgages may not be the best option for everyone. 

One potential disadvantage is that they often come with higher upfront closing costs and may require a higher down payment compared to variable rate mortgages. 

Additionally, if interest rates decline significantly after the borrower has secured a fixed rate mortgage, they may end up paying a higher interest rate than they could have obtained with a variable rate mortgage. 

Finally, fixed rate mortgages may not be suitable for homeowners who expect to move or sell their home within a few years, as they may end up paying more interest over the short term compared to an adjustable rate mortgage.

Variable Rate Mortgage

A variable-rate mortgage is a type of mortgage in which the interest rate is not fixed and can fluctuate over the term of the loan. If you’re on your mortgage lender’s Standard Variable Rate (SVR), it often follows the Bank of England rate. Therefore, your rate could rise or fall after a change in the Bank of England base rate.

Advantages and disadvantages of variable rate mortgages

One of the main advantages of a variable-rate mortgage is that the initial interest rate may be lower than the interest rate on a fixed-rate mortgage. This can make a variable-rate mortgage more attractive to borrowers looking to save money on their monthly mortgage payments. However, the risk with a variable-rate mortgage is that the interest rate can go up over time, which could lead to higher monthly payments.

Variable-rate mortgages may be suitable for borrowers who are comfortable with some interest rate risk and willing to take the chance that their monthly mortgage payments may increase over time. However, they may not be the best option for borrowers looking for the stability and predictability of fixed-rate mortgage payments. 

Overall, it’s important to carefully consider the potential advantages and disadvantages of a variable rate mortgage before deciding if it’s the right choice for you. It’s also a good idea to talk to a financial professional to get more information and advice about what is best for your individual circumstances.

The importance of research and seeking professional advice when making a decision about mortgage rates

Making a decision about mortgage rates can be daunting, especially if you are a first-time homebuyer.

It’s important to remember that while it may be tempting to just go with the first mortgage rate you come across, it’s always a good idea to do your research and seek professional advice before making a decision. 

This is because mortgage rates, whether fixed or variable, can have a significant impact on your financial situation and the cost of your home. 

By taking the time to research and seek professional advice, you can make an informed decision that is best for your unique financial situation and goals.

So don’t be afraid to ask questions, gather information, and seek guidance from experts in the field.

It may take a little extra time and effort, but it can ultimately help you make the right decision for your future.

Our team is here to help. Get in touch.

If you do not make regular payments on your mortgage, your home could be repossessed.