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The Rise Of Fixed Rate Mortgages

 


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Fixed rate mortgages have reached offers of a ming blowing 30 year term although the average interest rate of a fixed rate mortgage is increasing even though the bank of england base rate is starting to decrease.

There are now more fixed rate mortgages on offer than ever before in the UK but is this a good thing for UK homeowners? Well, the Chancellor showed his support of fixed rate mortgages in the budget and it seems as though lenders are taking note of this by offering these staggeringly long fixed rate mortgage deals. But 30 years! I think this is a step too far.

A fixed rate mortgage of 5 to 10 years may be OK for people who are looking for certainty in their monthly budgetting for that length of time, however, I think this is still far to long for a remortgage if you think back 5 years ago interest rates were much lower than they are today. The problem with taking out a long term fixed rate deal is that interest rates are reviewed by the bank of england and maintained on a regular basis so can change in a matter of months.

If you're thinking of a long term fixed rate mortgage then bear in mind that although there is now more choice than ever this choice comes at a cost i. e.interest rates on these long term deals are high compared to shorter term fixed rate mortgages. This is because lenders are looking to avoid risky customers and therefore risky lending practices. Of course it works both ways with a fixed rate mortgage, if interest rates start rising virtually every 3 months then you'll be happy to have fixed your interest rate. Of course if interest rates fall and you've fixed your interest rate much higher then you will be paying over the odds until the base rate is equal to your fixed rate.

Even though the Bank of England has dropped interest rates over the last few months this doesn't mean that lenders will automatically pass these savings onto the high street. Lenders can choose not to reduce their interest rates even though the Bank of England are reducing the base rate.

This is especially true with fixed rate mortgages at the moment. The longer the fixed rate period you're after the more you will pay, maybe not in arrangement fees or upfront costs but certainly in interest rates. Make sure that you seek professional financial advice if you are uncertain about which mortgage is best for you. You should seriously consider your ability to repay the mortgage.

Simon Duffy writes for the Financial Blog a UK Finance Blog talking about all aspects of personal finance.

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