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Fixed-rate mortgages can be a beautiful thing for those who invest in them, offering certainty and stability, and warding away price rises. The way they work is by setting an agreed interest rate and then sticking to it, protecting borrowers from unwelcome or unaffordable inflation. This provides the boon of mortgage repayments that will remain unchanged for as long as mortgagees have agreed with the lender.
However, in recent years, this has seen those with fixed-rate mortgages tied into paying a price far higher than many of their tracker mortgagee counterparts, who have benefitted from the drop in rates that began in March 2009. For some lucky homeowners, this saw interest rates fall to nothing, as the base rate plummeted to its minimum 0.5 per cent threshold.
However, with interest rates looking set to rise come 2015, fixed-rate mortgage owners are about to feel the benefit of their choices. For those looking to borrow, a fixed-rate could be the ideal option moving forward.
Advantages
Fixed-rate mortgages have many advantages to recommend them, the main one being consistency. As homeowners, many of us are forced to work to a tight budget. We’d all like to have a limitless supply of capital, but the reality is that most of us don’t. This makes fixed-rate options ideal for those who like stability or lack an excess of funds, as borrowers know, to the penny, what their monthly repayments will be for the duration of the agreed period.
This is in stark contrast to their adjustable counterparts, whose borrowers risk sometimes dramatic increases in interest as the economy fluctuates, which may not always be in line with a similar increase in earnings. Although they also have the promise of benefitting from drops, the monetary savings are not always enough to compensate for the risk of being unable to meet repayments, and the resultant consequences of this.
This certainty is not only a financial benefit, but also an emotional one. The strain of struggling to meet loan repayments can be a terrible burden, but this is seriously minimised for those people who know, bar any unforeseen disasters, that they will be able to meet their financial obligations month-on-month. The knowledge that, unless your circumstances change dramatically, you will not be risking missed payments, foreclosure or the loss of your home, is often underrated, but is a significant benefit of fixed-rate mortgages.
Disadvantages
Of course, as with anything, all good things must be countered by less desirable ones, and fixed-rate mortgages are not without their disadvantages. Thus, it is only fair to discuss these too.
As ever when something is highly sought-after, fixed-rate mortgages are harder to come by than other types. This means that they are not always on the table for those with poor credit, so some people may have to look elsewhere for capital to finance their property.
A second factor that turns some people away from fixed-rate arrangements is that there will be no benefit to homeowners if interest rates drop. Some people prefer to risk the chance of interest rates rising on the probability that they could also drop, and this type of person may find that fixed-rate packages, such as those offered by Saffron Building Society, simply don’t appeal to them.
When it comes down to it, whether a fixed-rate mortgage will suit you or not is entirely defined by your individual personality, needs and financial situation. Fixed-rate mortgages offer many people the stability that they search for, but there are others who prefer to gamble with chance than to commit to an offer that may see them paying more than some of their peers. The beauty of fixed-rate mortgages is this ability to protect the borrower from the ravages of the country’s economy, good and bad, but that doesn’t mean that it’s the best option for you. In the final instant, the question you should really be asking yourself is this: do I want to commit to paying a set sum each month or not? If the answer is yes, then a fixed-rate mortgage could be perfect for you.