| Fixed Rate Mortgages, More Cons Than Pros |
| Articles - Mortgage |
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Pro1 - You are guaranteed peace of mind and a good nights sleep due to the fact you are immune to interest rate hikes.
Pro1 - You are guaranteed peace of mind and a good nights sleep due to the fact you are immune to interest rate hikes. Pro2 - Monthly payments that won't change leaving you knowing what you need to pay every month. Pro3 - Budget control - knowing what you have to pay out each and every month can be extremely useful, especially for those on a tight budget. Pro4 - Eliminates risk - A fixed rate mortgage eliminates the fear and anxiety of what your mortgage payments could rise to if the interest rates were increased. There was a time in 1988 when interest rates rose by over 10%. Leaving those without fixed rate mortgages paying more than double their normal payment. Not a nice thought. Pro5 - Low cost - Besides the security of a fixed rate mortgage you are generally offered this type of mortgage at a lower interest rate than the SVR (Standard Variable Rate). There are your pros but as always, here come the cons. Con1 - They come with redemption penalties. And they are usually 6 months payments if you redeem the mortgage or move house. Nasty!! Con2 - Prisoner in your own home - A redemption penalty is activated if you want to move home and move lenders. If the redemption penalty is a load of money it could entrap you in your own home like a prisoner. Con3 - Loss of equity - If you want to move home you have less money to put towards your next home. Just imagine having 6 months mortgage payments as a lump sum less to put down on your next house. Con4 - An increase at the end. You are faced with the prospect of suddenly having to pay more when you go on the lenders SVR when your fixed rate mortgage abruptly stops. Con5 - Set up costs. You get to pay the lender a nice lump of money just to put your fixed rate mortgage into place. Con6 - Interest rate changes. If rates can go up, they can drop too. It's not nice if you are paying more (sometimes much more) than those on SVR mortgages. Summary: More cons than pros but despite that my advice is to go for a fixed rate mortgage if you can be certain that you won't need to redeem the mortgage before the fixed period ends. If so then you can give yourself peace of mind with a fixed rate mortgage. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Monty Burn was chief of the Voluntary Mortgage Regulator until his sacking for helping too many people. Find out how to get the best fixed rate mortgage deal or download Monty's Mortgage Bible at his website Mortgage Watchdog. Insider knowledge can be yours. |