A fixed rate mortgage does what it says on the tin - it comes with a rate of interest that's fixed for a certain period of time. This means that you'll pay the same amount each month for your mortgage throughout the fixed rate period. Typically, fixed rate mortgages can run from two years right up to ten years and sometimes longer. After the fixed rate period ends, then your mortgage will usually revert to a standard variable rate mortgage.




So, say you chose a fixed rate mortgage with the rate fixed for five years and your monthly repayment was �750, then this would be the amount you would pay each month for five years, however much the Bank of England base rate fluctuated. Once the five years is up, the amount you'd have to pay out could vary if the interest rate went up or down.




Pros and cons




One of the downsides to taking on a fixed rate mortgage is that you'll not benefit if the rate of interest goes well below what yours is fixed at. On the plus side, if the rate of interest goes up, then of course you'd be better off. That's why it can be good for those homeowners who are on a tight budget and need to know exactly how much their major outgoings will be every month.




Making the right decision for you




When shopping around for fixed rate mortgages, the internet is a useful resource in helping you to decide if the fixed rate would be a better solution than taking out a variable rate mortgage or other type of borrowing.




One of the factors you'll need to consider before tying yourself into a fixed rate mortgage is how you will manage once the fixed rate period ends. If you've taken out your mortgage for a particularly low rate of interest, once the fixed period is up you may have to revert to a variable rate and this could add a lot of money onto your monthly repayments. However, if your mortgage does not have an Early Repayment Charge, you could swap to another deal.




What is a redemption penalty?




Many fixed rate mortgages come with an Early Repayment Charge written in to their contract. That means that if you wanted change to another deal and remortgage within the set period, then you could have to pay out a hefty fee to get out of your current mortgage. Most Early Repayment Charges end when the fixed rate period ends, but some may go on for longer. For example, if you took a fixed rate mortgage over two years it might come with the condition that you stay with that mortgage provider for four years (two years at the fixed rate rate and two years at a standard variable rate). To get out of that contract before the four years was up would mean you'd have to pay the Early Repayment Charge.




Therefore, it could be in your best interest to look carefully at the details of any fixed rate mortgage that you're considering. It's important that you're aware of the conditions and limits included in the deal.




Comparison websites such as Tesco Compare, can provide a great deal of free advice, information and FAQs relating to all aspects of fixed rate mortgages. Using a comparison website could help you get a grasp on what's involved and what you have to look out for.

Author: Liz Willder

About the author:
Liz Willder is from Tescocompare.com, the insurance comparison site where you can compare buildings insurance policy features and prices.

Article source: Free Insurance Articles.