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Fixed-rate mortgages
Fixed-rate mortgage comparisons by Koodoo[1]
- Compare fixed-rate mortgages from multiple providers for two years, five years and other terms
- Have the security of knowing your monthly payments will stay the same for several years
- Consider speaking to a financial adviser before taking out a mortgage
What is a fixed-rate mortgage?
A fixed-rate mortgage is when the interest rate is locked in for a set period of time and is guaranteed not to change until it ends. This means that your mortgage repayments will stay the same for the duration of the fixed period.
How long the interest rate remains fixed for will depend on the mortgage you choose, but usually it’s one, two, three, five or ten years. However, two and five year fixed-term mortgages are more common.
Once the fixed-rate period has ended, you’ll be moved to the lender’s standard variable rate (SVR), which is usually a lot higher. So, it’s important to make sure that you remortgage before this happens (around three months before it ends).
Why choose a fixed-rate mortgage?
A fixed-rate mortgage can provide you with peace of mind that your mortgage repayments won’t increase in the near future.
This can be really reassuring and help ease financial stress in a time when the cost of living is rocketing.
What will it cost?
There are fees and charges to watch out for on a fixed-rate mortgage:
Arrangement fees: Also known as a mortgage or product fee, this is a charge for taking out the mortgage and is usually around £1,000, but it will depend on the lender.
Early repayment charges: You’ll be charged for leaving your mortgage deal early, this will usually be a percentage of the remaining balance. It will decrease as the fixed term goes on. For instance, if you leave in the first year, you could be charged 5% of the outstanding balance, this could decrease to 4% in the second year, 3% in the third year and so on.
Overpayment charges: You may be able to overpay up to a certain amount each year (potentially up to 10% of the balance). If you want to go over this, you could be charged an ERC.
What are the benefits of a fixed-rate mortgage?
It’s important to compare the pros and cons for different types of mortgages before choosing the right one for you. The benefits of a fixed-rate mortgage are:
- Helpful when budgeting as you know exactly how much you’ll be paying each month
- No increases in your repayments during the mortgage term
- If you’re putting down a large deposit, you can expect competitive rates compared to a variable mortgage
What are the drawbacks of a fixed-rate mortgage?
Here’s what you need to look out for:
- Arrangement fees can be very high and could ultimately mean that the fixed-rate mortgages with the lowest interest rates aren’t the best deals, so it’s worth doing your maths
- If you need to leave your mortgage before the fixed term ends, you’ll be required to pay an ERC
- Although your payments won’t increase if interest rates rise, you’ll miss out on your repayments lowering if interest rates decrease
- You’ll be switched to a SVR when the fixed-rate term ends if you haven’t remortgaged, which can be expensive
Deciding how long to fix for
This will completely depend on your circumstances and plans.
Think about how long you want to spend in the house and whether you’d be comfortable making the fixed payments even if variable interest rates dropped, or whether you’d rather choose a mortgage with more flexibility and take advantage of the interest rate potentially lowering.
If you’re thinking about opting for a longer fixed rate, just be aware that you’re committed to that mortgage for the length of the fixed term. If you needed to move during that time, for example to relocate for a job, or decided to remortgage, you’ll be charged an ERC.
You may be able to transfer your fixed-rate mortgage if you have to move, but it will come with hefty charges.
Generally, you’ll pay a lower rate of interest on a two-year fixed-rate mortgage than a five-year option because you’re not locked in for as long.
How to get the best fixed-rate mortgage deal?
To get the best fixed-rate mortgage deal, first you need to consider how long you want to be locked into the set interest rate for. Think about your finances and your plans for staying in the house.
Once you have decided that, compare options from across the market to find the best deal for you.
You can look at the annual percentage rate charge (APRC) to see how much the mortgage would cost you over the whole term, including when you’re moved to the SVR. Although, you should remortgage before this happens.
Should I speak to a mortgage broker?
This depends on your circumstances. If your situation and house purchase is straightforward and you’ve bought a property before, you may not need to. You can compare options easily with us to find the right deal for you.
If you need a specialist lender or are struggling to find a mortgage, a mortgage broker could help.
Be aware that some mortgage brokers will charge a fee and may not have access to the best deals.
What are the alternatives?
The alternative to fixed-rate options are variable mortgages. There are a couple of different ones to consider:
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Tracker mortgages
The interest on your mortgage will track the Bank of England base rate, with an added percentage on top. If the base rate increases or decreases, so will your mortgage repayments
-
SVR mortgages
You’ll be moved to the SVR when your fixed-rate period ends. It’s usually a lot higher, so you’ll want to remortgage before this happens. It doesn’t track a financial indicator, so the lender can change it when they want to
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Discount mortgages
This is like a tracker mortgage, but your interest rate tracks the lender’s SVR minus a set percentage
FAQs
When your fixed-rate deal ends, you’ll be moved to the lender’s SVR.
Think about remortgaging around two to three months before your fixed rate ends to avoid your repayments increasing.
You can, but it will cost you.
ERCs can be steep, especially if you want to leave early on into the fixed-rate period.
If it’s likely that you’ll want to move or switch mortgages within the first few years of owning the house, you may want to avoid a fixed-rate option.
Generally, ten years is the longest you can fix a mortgage for, though they’re not widely available.
15 and 40-year mortgages have occasionally been offered, but they’re extremely rare.
There are five-year fixed-rate mortgages available specifically for first-time buyers.
They can help you get on the property market, keep payments consistent for a set time and are available if you have a smaller deposit. You can compare 95% and 90% loan-to-value (LTV) options easily.
Yes, it’s possible to get a fixed-term mortgage for a buy-to-let property.
They’re usually interest-only mortgages and the repayments are taken from the property’s rental income.
Two, five and ten-year fixed-rate mortgages are the most popular options. However, shorter fixed-rate periods will offer more competitive rates.
Useful links
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
PLEASE NOTE: THE FCA DOES NOT REGULATE MOST BUY TO LET MORTGAGES
[1]For online mortgage comparison and advice Gocompare.com introduces customers to Koodoo which is the trading name of Mortgage Power Limited who are authorised and regulated by the Financial Conduct Authority (FRN 845978). Gocompare.com’s relationship with Koodoo is limited to that of a business partnership, no common ownership or control exists between us. Please note, we cannot be held responsible for the content of external websites and by using the links stated to access these separate websites you will be subject to the terms of use applying to those sites.