When selecting your next fixed rate it is important to consider 5 key factors
The interest rate
The interest rate is often the most important factor when choosing a fixed-rate mortgage. The lower the rate of interest, the lower your monthly payments will be. For example a 0.5% difference is an additional £416 month when borrowing £1 million.
Term
The term of the mortgage is the length of time you have to repay the loan. The most common terms for a fixed rate mortgage are 2 years and 5 years. A longer term will result in lower monthly payments, but you will pay more interest over the life of the loan.
APRC
The APRC, or annual percentage rate of change, is the total cost of the loan expressed as a percentage. The APRC includes the interest rate as well as other fees associated with the loan. The APRC is calculated by factoring in all costs associated with arranging the loan and the interest rate, over the term of the loan.
Early repayment charges
The early repayment charges, or ERC, is a fee some lenders charge if you pay off your loan early. it is important to make sure you consider how long you expect to have the mortgage and understand the ERC charges before choosing a new fixed rate.
Completion costs
Completion costs are fees associated with arranging a mortgage. These costs vary depending on the lender and type of loan you choose. These costs include administration, valuation, legal and product fees.
What option is the most suitable?
According for data from the Office for National statistics more than 1.4 million households will need to renew their fixed rate in 2023. 57% of these, 700,000, were fixed at an interest rate which was less than 2%.
If you are facing the prospect of taking a new mortgage deal you will likely be faced with a variety of options, all of which look unappealing. The interest rate offered will be as much as four times the current rate you are paying. This can place significant pressure on household finances and dramatically impact your quality of life.
Interest rates on most fixed rate deals are lower on a 5-year fixed rate when compared to a 2-year fixed rate for the same loan. This is because interest rates are predicted to fall across 2024. While each decision will depend on individual circumstances a 2 year year fixed rate would be a suitable option for someone who was happy to take some risk, with the potential benefit of lower rates being available when the mortgage requires a further renewal.
Need help choosing a fixed-rate mortgage? Speak to an advisor today!
Our advisors can help you understand your options and choose the right mortgage for your needs. We offer a free consultation, and there is no obligation to proceed.
To schedule a consultation, please call us at +44 (0)20 3992 8700 or message on on WhatsApp +44 (0)7828 714566.