A fixed rate mortgage describes a type of home loan where the interest rate payment is fixed for a specified period. Once that period ends, the mortgage remains in place with the lender, but it typically switches to the standard variable rate offered by that lender. This is abbreviated to SVR. Fixed rate mortgages run for at least a year, but there are deals on the market that last for two, three, or five years. Some lenders offer 10-year deals.
There are several advantages of opting for a fixed rate mortgage rather than a variable rate one. Firstly, you know what the interest will be on that loan for the period it runs for. This means you’ll know exactly what your monthly payments are, allowing you to financially plan with more confidence. Secondly, it gives you peace of mind that you are protected against any potential rises in the base rate set by the Bank of England.
You will typically find fixed rate deals are available for slightly higher rates than variable rate deals. However, you are offsetting that higher percentage with the knowledge that it will not change for however long the deal lasts. If the base rate rises, banks and building societies will very likely raise their own variable rate deals to reflect this. Those whose mortgage payments are connected to such deals would then see an immediate rise in the amount they need to pay each month. In contrast, those on a fixed rate will continue to pay the same amount they always have. As such, this type of loan offers insurance against the possibility of a rate rise in future.