Fixed Rate Mortgage and Remortgages

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Fixed Rate Mortgage

With a fixed rate mortgage, as you would expect, the mortgage rate is fixed for a set period of time, so no matter what movements occur in the lender's standard variable mortgage rate (or the Bank of England base rate), the borrower's arrangement is fixed and, therefore, so are the monthly mortgage payments. This kind of arrangement would suit someone who likes to know where they stand.

Fixed rate mortgage deals rely on the mortgage lender obtaining fixed amounts of funds at a fixed rate from the money markets, and releasing these at a margin. Once the funds are exhausted the lender normally returns to the market for further supplies.

The rate at which the fixed rate mortgage lender is able to offer the funds is dependent on what rate they were able to obtain them at, and the margin they need to make.

As a fixed rate mortgage borrower, if the standard variable mortgage rate falls below the fixed rate, hard luck. If it rises above, lucky you.

Although a fixed rate mortgage gives comfort during its term, the borrower has to be aware that when it ends, like all other schemes, the borrower reverts to the standard variable mortgage rate. Although an advantage, if the mortgage rates have dropped in the meantime, it can be a shock if the standard variable mortgage rate has shot upwards during this time. If the deal came with no "extended tie-ins" (which binds the borrower to stay on the variable mortgage rate for a period of time after the fixed rate ends), then a remortgage can always be arranged and another deal taken, say a discount this time, to lessen the payments.

Recently the British Government has been keen to get the UK borrowers to take up long term fixed rate mortgages, with the emphasis on a rate fixed for 25 yrs.

However, no matter how many lenders produce such an offering, very few indeed seem keen to take it up, and some lenders have withdrawn the product after only a few months.

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