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A fixed rate mortgage is simply a means of guaranteeing your mortgage payment over a set period.

Fixed rates are for an initial period, typically anything from a year to 10 years. After the fixed rate period ends your mortgage will go onto a variable rate – most normally a tracker rate, or your lender's Standard Variable Rate.

What is a fixed rate mortgage

During the fixed rate period your payment will remain the same, regardless of what variable mortgage interest rates do.

So while you are protected if rates go up, you'll be paying over the odds if interest rates fall during the fixed rate period.

Fixed rate mortgages normally have an Early Repayment Charge if you want to remortgage or repay your mortgage during the initial fixed rate period.

This said, most fixed rate mortgages will allow you to make overpayments, typically up to 10% per year.

Fixed rate mortgages: advantages and disadvantages

You know exactly what your mortgage payment will be, for a set period The best fixed rate mortgages often charge a high arrangement fee
If interest rates go up, your payments won't If interest rates go down, your payments won't – so you could pay more than the prevailing rate
Your mortgage is likely to be your biggest monthly outgoing. Knowing what you're going to be paying allows you to budget and plan your finances with more certainty If you want to repay your mortgage early, or remortgage during the fixed rate period, you will have to pay an Early Repayment Charge
  When the fixed rate period ends you'll go onto a variable rate. Depending on the interest rate climate, this could mean that your payments suddenly make a jump (although you can remortgage to a different lender, or arrange a new mortgage deal with your existing lender to save money)

When you're coming to the end of a fixed rate period…

Up to six months before the end of your fixed rate period, start looking at the best mortgage deals available to see if you can save money. When your fixed rate ends you'll go onto your lender's Standard Variable Rate, or a tracker rate. These don't offer the same payment security as a fixed rate, and, depending on the interest rate climate, could mean that your payment will make a sudden jump.

On the flipside, it can sometimes be the case that the variable rate you go onto is lower than the fixed rate you've been paying. While this might come as a pleasant surprise, remember that if rates go up so will your payment – you could end up paying a lot more than if you had remortgaged to another fixed rate. If you do decide to stay on a lower variable tracker or standard variable rate, consider keeping your mortgage payment the same. This overpayment will reduce the term of your mortgage more quickly.

You can get the wheels in motion for a remortgage several months before your fixed rate period comes to an end. Then you can simply wait till the fixed rate period finishes (to avoid any Early Repayment Charges) and complete your remortgage to a new fixed rate.

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