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A borrower may avail of a fixed rate mortgage, which necessitates a payment of a fixed interest every month for a fixed period. The fluctuations of the base rate determined by the Bank of England or the standard variable rate proffered by the lender do not affect the monthly interest reimbursements. You may find some queries regarding fixed rate mortgages answered here.
Q. What are the types of fixed rate loans available?
A. Several fixed rate loans are available with terms ranging from two to five years. However, you may get a smaller or a larger fixed rate period for your loan.
Q. What happens at the conclusion of the fixed rate period of your mortgage?
A. After the fixed rate period ends, the interest rate slips back to the standard variable rate made available by the lender. In most cases, this rate is higher than that offered for the fixed rate period.
Q. Can a borrower refinance before the mortgage period expires?
A. Refinancing is certainly possible. You may refinance to a different kind of product to suit your convenience. However, your lender may impose an early repayment charge, should you decide to change to another mortgage.
Q. What are the essential benefits of a fixed rate mortgage?
A. The payment scheme is easy to understand. An upward modification of the base rate will not cause an increase in the monthly repayments of the loan. This affords stability to a borrower. A homeowner can adhere to a financial plan. Since fixed rate mortgages are very popular, lenders offer these products at competitive prices, which is advantageous for the borrower.
Q. What are the major drawbacks of fixed rate mortgage?
A. Lenders require an application for setting up fixed rate mortgages. The rate of interest for the product is generally higher than for comparable adjustable rate mortgages. A great shortcoming of a fixed rate loan is that you may not benefit, if there is a fall in the base rate or the standard variable rate offered by the lender during the fixed rate period. In addition, once the fixed rate period ends, the borrower will have to make his payments according to the prevailing standard variable rate offered by the lender. A possible climb in the rate could greatly inconvenience the borrower, if the borrower does not work out a strategy for the increased repayments in time.