Choosing between a fixed vs variable rate mortgage is one of the most important decisions you’ll make when buying a home. Both options can really affect your monthly mortgage payments, making it crucial to know which type best suits you.
In this guide, we’ll break down fixed rate vs variable rate mortgages and explore how each type works. We’ll also review their pros and cons to see how they can benefit you.
- What is a Fixed Rate Mortgage?
- What is a Variable Rate Mortgage?
- Pros and Cons of a Fixed Rate Mortgage
- Pros and Cons of a Variable Rate Mortgage
- Which Mortgage Type is Best for You?
- Reliable Advice and Guidance at Stuart Brown Mortgage Services
What is a Fixed Rate Mortgage?
A fixed rate mortgage means your monthly interest payments are the same each month. They are usually offered for a specific period of time, typically 2-5 years. During this time, your monthly mortgage payments will be predictable and they wont change, regardless of interest rate market fluctuations.
Once your fixed rate period is over, you’ll begin to pay a Standard Variable Rate (SVR). The SVR can be different for different lenders and will likely change month-on-month. Also, this means your monthly payments can change aligned with the Bank of England’s Base Rate.
What is a Variable Rate Mortgage?
Conversely, a variable rate mortgage is a type of mortgage where your monthly payments change based on the Bank of England’s Base Rate. This means that each month, your payment will differ depending on whether the interest rates are up or down.
As you can figure out, this doesn’t mean your monthly payments will always be more than those of a fixed rate mortgage. You can guess how interest rates decreasing would affect your payment on a variable rate mortgage.
Pros and Cons of a Fixed Rate Mortgage
The main advantage of being on a fixed rate mortgage is that you’re protected against the possible interest rises. However, the catch is that you may miss out on lower interest rates if the market rate decreases during your fixed period. Here’s some pros and cons in more detail:
Pros:
- Predictability: With a fixed interest mortgage, you know exactly how much you’ll be paying each month for the duration of the fixed term. This makes it easier to budget and plan your finances.
- Protection Against Interest Rises: Fixed rate mortgages offer financial protection against market fluctuations. This can be especially valuable in today’s economic conditions.
Cons:
- Less Flexibility: If interest rates drop after you’ve locked into a fixed rate, you won’t benefit from the lower rates. This means you might end up paying more than you would with a variable rate mortgage
- Higher Initial Rates: Fixed rate mortgages often come with higher interest rates compared to variable rate mortgages, especially in the early stages. This could result in higher monthly payments than a variable rate mortgage.
Pros and Cons of a Variable Rate Mortgage
With a variable rate mortgage, the key advantage is that when interest rates are on the decline, your monthly payments will be too. However this works both ways and an increase in interest rates could leave you with more costly mortgage payments. It’s important to do your research on variable rate mortgages before going for one.
Pros:
- Benefit from Interest Rate Drops: If interest rates decrease, your mortgage payments will likely go down. This is a key advantage over fixed rate mortgages, where payments remain the same even if rates fall.
- Lower Initial Interest Rates: Variable rate mortgages often start with lower interest rates compared to fixed rate deals.
Cons:
- Less Stability: If you’re someone who prefers certainty in their finances, a variable rate mortgage can be stressful due to payment fluctuations.
- Risk of Rising Interest Rates: If rates increase significantly, your mortgage payments could become much higher, leading to financial strain.
Which Mortgage Type is Best for You?
There’s no ‘right’ mortgage type for you. It depends on your financial situation, risk tolerance and long-term plans.
Fixed rate mortgages are the most popular choice, especially for first-time buyers. They offer stability and predictable monthly payments. If you prefer certainty and want to avoid market fluctuations, a fixed rate mortgage is the best option for you.
Variable rate mortgages can be appealing if you’re prepared for both potential savings and the risk of rising interest rates. If you can handle fluctuating payments, a variable rate mortgage might help you save money.
Consider your budget, future plans, and how much risk you’re willing to take before deciding.
If you want to find out more or simply just speak to an advisor, contact us here. Our friendly team is here to answer any questions you may have about interest rates or application processes.
Reliable Advice and Guidance at Stuart Brown Mortgage Services
Choosing between a fixed or variable rate mortgage can be overwhelming, but you don’t have to decide alone. At Stuart Brown Mortgage Services, we provide expert guidance tailored to your financial situation, helping you find the best mortgage deal.
Our experienced advisors will assess your needs and explain your options clearly, ensuring you make an informed decision.
Get in touch today for reliable mortgage advice and let us help you secure the right mortgage for your future!
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