Introduction

How to find the best fixed rate mortgage is a question that most people will ask themselves at some point. Fixed rate mortgages can be extremely beneficial if you fix at the right time and also offer substantial stability in repayment amounts for the term of the fixed rate mortgage deal. However finding the best fixed rate mortgage can be difficult especially if you are not sure what to watch out for. We offer some practical tips to help you find the best fixed rate mortgage deal to suit your individual or family needs.

Firstly lets look at the benefits of a fixed rate mortgage;

1. Improved Budget Planning

Fixed rate mortgages can really help you with your household monthly budget planning as essentially it means that for the duration of the fixed rate mortgage you will be paying out the same amount each month meaning that you can budget more easily. Unlike a variable rate mortgage you will not be at the mercy of the money market which is subject to monthly interest rate reviews by the Bank of England and which if raised will lead to you paying a higher amount on your monthly repayment.

2. Protects Against Future Interest Rate Increases

In a volatile financial market fixed rate mortgages are an excellent solution to avoid having to pay huge increases in repayments if the interest rates go up , especially when money may already be tight for you. However it should be noted that variable rate mortgages are more responsive to market conditions meaning that you can benefit from reductions as well as increases.

3. Minimum Limits Or Tracker Mortgages

Some variable rate mortgages have minimum limits which prevent your interest rate going lower than a certain level. Whilst this is great news for banks and other mortgage lenders it means that in times of rapidly reducing interest rates you will not benefit from the full mortgage rate decrease. These are sometimes referred to as Tracker Mortgages as they track the Bank of England interest rate and are usually set a certain percentage above or below the base interest rate.

4. Interest Rate Decreases.

The assumption of fixed rate mortgages is that you will not get any interest rate reductions and this is certainly the case. However even with a variable rate mortgage you may not get any interest rate reductions passed onto you depending on how low the interest rates already are and how short of money the mortgage lender is. As such fixed mortgages are not always the more expensive option that they are made out to be and they can offer stability in a volatile mortgage rate market.

How to find the best fixed rate mortgage;

1. Choose a 2 - 5 fixed Rate Mortgage To Meet Your Needs

If you are nervous about entering into a fixed rate mortgage for five years then two year fixed rate mortgages can be a great alternative and you can get the best of both worlds meaning that you benefit from set mortgage payments without tying yourself into a five year fixed rate mortgage deal and then suffering from a drop in interest rates. Make sure that you make your fixed rate mortgage meet your individual needs and if in doubt seek independent financial advice from a qualified financial advisor.

2. Penalty Fees (Early Redemption Fees)

Whilst fixed rate mortgages can be beneficial in times of uncertainty and rapidly increasing interest rates, they also incur penalty fees or early redemption fees should you decide to pay off either all or a large sum of your capital amount. Variable rate mortgages do not have penalty fees which means that you can benefit from the flexibility of paying off your mortgage when best suits your needs. However newer fixed rate mortgage products now permit small overpayment limits which can be useful to reduce your capital amount more quickly, but without incurring penalty fees. It is normally worth considering looking for fixed rate mortgages that will allow you to overpay by up to £500 per month. However some fixed rate mortgages permit you a percentage of your overall capital amount, I.e. you can pay up to 10% of your total borrowing off as an overpayment each year without incurring the penalty fee or early redemption fee.

3. Arrangement Fees

Many fixed rate mortgages come with arrangement fees of anywhere between £400 & £1500. An arrangement fee is a sum of money that you pay the lender in exchange for accepting a particular fixed rate mortgage deal. In most cases these arrangement fees can be added to the capital amount of the mortgage but some lenders demand these arrangement fees upfront so it is important you check first. It is always worth calculating the cost of adding any arrangement fee to your mortgage in terms of the extra interest amount you will be charged for doing this. Often the best way is to pay arrangement fees upfront as that way they are cheaper and you will not be charged an additional interest amount.

4. Portable Fixed Rate Mortgage Deals

An increasing number of mortgage lenders now offer what they describe as portable fixed rate mortgages. These allow you to carry your fixed rate mortgage over to another property should you move property part way through your existing deal. This is an excellent development as previously a major criticism of fixed rate mortgages was that you had to be sure of staying put in your property until your fixed rate mortgage deal expired. Essentially it would mean that if you moved to a larger property you would continue to pay your original capital amount at the existing rate, but the new capital amount would be subject to a new rate of interest. So for example if you bought a house for £100,000 on a fixed rate of 4% but moved to a new house costing £150,000, the original £100,000 would still be subject to the 4% charge but the additional 50,000 would be subject to a new rate of interest depending on the interest rate level at the time.

5. Use a Mortgage Broker

No one likes paying money to agents, but a good mortgage broker can be worth their weight in gold and also help you to save money on your fixed rate mortgage deal in the long term by identifying the best offer. A mortgage broker will compare the whole market on your behalf and do the hard work for you and then simply present you with the best options. Most mortgage brokers will charge you a sum for finding a mortgage usually of between £200 - 500 and this will need to be paid in addition to any arrangement fees and that is where the sums can start to increase you capital borrowing. However if you are taking out a 5 year fixed rate mortgage you may actually save money in the long term by obtaining a better mortgage deal than you could have obtained had you tried to compare the market yourself.

Our top tip is to opt for an independent mortgage broker that is free to compare the whole market and not one that is tied into a specific mortgage lender’s products. Normally if you check the mortgage broker’s website it will tell you whether they are independent or if not will include a phrase like “Licensed to advise on Barclays mortgages” or “A licensed agent of Barclays mortgage products”.

You can view our list of mortgage brokers to find a suitable organisation or do a Google search on “Independent Mortgage Brokers”

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