What is a fixed rate mortgage?

Fixed rate mortgages are mortgages where the interest rate will not move and remains fixed. Lenders will usually offer this mortgage as an incentive to borrowers for an initial period such as 3, 5 or 10 years so to entice you.

Your rates will usually switch to a variable rate (more expensive) after this initial period is over and that’s a good time to look into switching lenders for a cheaper rate or another fixed rate.

Advantages of fixed rate mortgages

They provide certainty as your monthly mortgage repayments remain the same for a fixed period of time.

Problems with fixed rate mortgages

  • If interest rates fall you will not benefit as you are locked in
  • If you want to switch deals to a better rate during your fixed rate period it will likely cost you early penalty charges
  • They usually have high arrangement fees (between £2000 to £3000)

What are short term fixed rate mortgages?

Short term fixed rate mortgages are those which are issued for just the initial period of a mortgage as a way of enticing more borrowers onto the mortgage product. They offer for a fixed term between 1-5 years of the initial mortgage term after which the interest rate will usually switch to the lenders standard variable rate (a more expensive rate).

For this reason short term fixed rate mortgages should usually be switched towards the end of their term to prevent your mortgage interest rate from increasing and pushing up your monthly repayment. A suitable mortgage management platform will inform you of when you should switch in time.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.