What is a fixed rate mortgage?

A fixed rate mortgage is a mortgage that has a set interest rate - fixed at the beginning which remains in place for a pre-agreed period, usually 2-5 years. After the initial period, the mortgage interest rate will revert to the standard variable rate.

The advantage to the fixed rate mortgage is that you can easily control and plan your monthly outgoings - because the payment remains the same every month regardless fluctuations in the base interest rate. If the interest rates increase beyond the level of your fixed rate on your mortgage, you will experience the real benefits of this type of mortgage.

On the other hand, if interest rates go down during your fixed rate period, you will be paying over the odds on your mortgage compared to what you would have been paying with a variable rate mortgage.

The fixed rate period can be anything between 6 months and 5 years - there will usually be penalties if you want to switch mortgages within this time. Because this type of mortgage depends so heavily on the direction of interest rates, we highly recommend speaking to a financial services professional before deciding how long your fixed period should last. We also advise looking the Internet and reading financial newspapers to get an understanding of the way in which the Bank of England interest rates are likely to move.