In the world of money, nothing is ever certain, and there's no way to know how the market will change in the future. But if you want to be able to plan your budget with precision, a fixed-rate mortgage could be the best choice. The payments will stay the same for a certain amount of time, usually the first one to five years of your mortgage. This means that even if the interest rate goes up, it won't change your payments. The rate can stay the same for as long as ten years.
The pros of a fixed rate
If you are on a tight budget, it can be helpful to know exactly how much you will need to set aside each month to pay your mortgage. Also, fixing your rate can be a good idea when it looks like the economy is about to change and interest rates are going up. If you've been studying the market and think that rates will go up soon, getting a fixed rate now could save you money over the next few years. Even if the Base Rate that the Bank of England sets goes up, you will be safe as long as your payments are fixed.
Cons of a fixed rate
If the market changes and interest rates go down, you might not be able to take advantage of the lower rates. Fixed-rate mortgages often have rates that are a little bit higher than the best deals. Be aware of clauses and penalties that keep you tied to your mortgage. These can last much longer than the fixed-rate period, and it may be too expensive to switch lenders or pay off your mortgage.
Many people spend a lot of time learning about the economy, but even financial experts who try to predict how the market will do often get it wrong. You can't know how interest rates will change in the future. You might be able to use some common sense, but there's no guarantee that a fixed-rate mortgage will be better than the SVR in five years. In the end, you have to make the best choice you can given how things are right now.
You should also check to see if the fixed rate mortgage is portable. This means that if you want to sell your home and move during the tie-in period, you can move the mortgage to your new home without paying any fees.
