Should I take out a fixed rate mortgage? If so, for how long?

Taking out a mortgage is a huge decision and it’s one that people don’t tend to take lightly. Most people will spend months researching the best lenders and will negotiate with their lender the most suitable terms for their mortgage. One of those terms could be related to interest rates and will answer the question of how long you should fix your mortgage interest rate for, if that’s the route you plan to take.


Short term fixed interest rate


When you take out a home loan, you will have the option to fix it for a short time. If you fix it then you will not be at risk of the mortgage rates increasing, which can help you budget. Typically if you fix your mortgage for a short time period the interest rate will be lower than those offered on longer fixed term contracts; and that can help your bank balance. It can also give you peace of mind. When you fix your mortgage you know exactly how much money is going to be going out of your bank account each mortgage payment period, and you can budget accordingly.


When you fix your mortgage for a short time period there is an increased chance that you will be able to take advantage of changing interest rates.


That means that if interest rates decrease then you won’t have to wait as long for a lower rate; and will be able to take the money that you’ve saved and put it into savings or other investments. On the flipside though, it does also mean that if rates increase, you’ll be paying more on your mortgage.


Just as the British economy is subject to change, especially with the upcoming election, your financial position could change at a moment’s notice. When you fix for a short term only, you’re giving yourself the option to switch to a lower rate more easily and can take advantage of savings.

When you have a shorter fixed term you won’t be subject to exit fees such as legal fees or contract cancellation fees and will therefore find it easier to switch mortgage terms if you find a better deal elsewhere.


Long term fixed interest rate


A long term mortgage is defined as being more than five years and can be up to 10 years. When you take out a fixed term mortgage loan and you’re weighing up the pros and cons of a short term vs a long term fixed interest rate loan, you need to consider various factors.


One such factor would be the general economy. Following the UK’s decision to leave the European Union, also known as Brexit, things may be a bit uncertain. If you fix your loan for a longer period of time you are giving yourself certainty and if interest rates suddenly rise you won’t find yourself being impacted by the increases. You’ll be able to budget and plan for a long period of time.


If interest rates are low then it’s worthwhile fixing for as long as you can and then putting the money that you’d save on higher interest rates into a savings account, shares or for the deposit on a second property (although you should get advice from a Braintree mortgage broker before making any decisions).

What should I do?


Everyone’s circumstances are different and what works for one person’s finances may not work for another person’s finances, so you really need to consider your situation before you make a decision. If you’re unsure then speak to the experts at Braintree Mortgage Advice Centre. They are trained and experienced in handling all your queries and concerns so you can just think about paying off your mortgage and choosing the term that best suits you.


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