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Fixed-rate mortgages are strange animals; they can be brilliant or awful, fantastically cheap or ludicrously expensive, provide reassuring stability or be a terrible financial straitjacket. They’re certainly not right for everyone, but are often the best option for many people. Here’s the Moneymagpie guide to fixed-rate mortgages – what they are and how you can get one.

• What is a fixed-rate mortgage?
• Who are they good for?
• Things to watch out for
• How do you get one?
• What are the best deals?
• See what you’d pay in seconds – use our free mortgage calculator
• Go to our mortgage comparison service for the best deal for you

What is a fixed-rate mortgage?

With a fixed rate mortgage, the interest rate you pay is set for the lifetime of the deal. It doesn’t what matter what happens with the economy – your rate will be the same. It doesn’t matter what the Bank of England does with the base rate – your rate will be the same. Whether it is an interest-only or repayment mortgage (check our handy guide here so you are clear on the difference), the amount you have to repay each month will not change during the term of the fixed rate period, come what may.

This can be great, and save you a bundle. At the same time, it can be a bad idea and prove really quite expensive.

With a fixed-rate deal, if interest rates rise, your mortgage payments will stay the same whereas someone on a variable or tracker mortgage will see their monthly repayments go up: bingo – you’re quids in.

However, the flip side is if interest rates drop, your mortgage payments will still stay the same whereas someone on a variable or tracker mortgage will see their monthly repayments fall. Just as you will not suffer if interest rates go up, so you will not benefit if interest rates go down.

There’s more. The fact that interest rates may rise means that, in theory, a fixed-rate mortgage could turn into a seriously good deal for the borrower. That also means that, by the same token, a fixed-rate mortgage can, in theory, turn into a seriously bad deal for the bank or building society offering it. The banks, unsurprisingly, don’t like the idea of a deal where they might lose out, so to protect against the possibility of an interest rate rise, they almost always offer fixed deals at a rate higher than those advertised for most variable-rate deals.

The upshot is that unless your name is Mystic Meg, and your crystal ball is in proper working order, you can never be sure whether a fixed rate deal will be the long-term cheapest option in purely financial terms.

So, seeing as it is such a double-edged sword as far as absolute value for money is concerned, what is the attraction of a fixed-rate mortgage over any other? The answer is that they offer stability and therefore peace of mind, which is invaluable to many. Going back to the beginning, the key thing about fixed-rate mortgages is that they are fixed. You always know how much you will pay each month, no matter what happens. This offers consumers the ability to budget for the future without always being a hostage to the Bank of England’s base rate.

You may end up paying slightly more for a fixed-rate mortgages, but it is a premium that is very often worth paying to be sure that you will not be paying a lot more in the event of a sharp rise in interest rates.

Who are they good for?

So hopefully you now understand how fixed-rate mortgages work – it wasn’t too difficult!! The tricky bit comes now: working out if a fixed-rate deal is right for you. Fixed-rate deals are often most associated with young people, particularly first time buyers. This makes sense as they are often just starting out on their career and are therefore on a tighter budget than slightly older borrowers, and would therefore be more vulnerable to rising interest rates.

However, first-time buyers are not going to be the only people on a tight budget. Couples starting a family, for example, may want to dodge the unpredictable financial cost of raising children by having a predictable, fixed-rate, mortgage deal. Even those who, objectively, are financially comfortable may still place a high value on the extra peace of mind and financial stability that a fixed-rate deal offers. In truth then, because the main benefit of such a deal is not, strictly speaking, financial but emotional, so fixed-rate deals can be for anyone, regardless of their financial situation.

Things to watch out for

The whole point of a fixed-rate mortgage is having the security of knowing exactly how much you will have to pay. To make sure that you get that security, and don’t get any nasty shocks, there are a couple of things to look out for in the small print:

• Arrangement fees

It may sound ridiculous (and here at Moneymagpie we certainly think it is!!), but some lenders will charge an arrangement fee for the few minutes work it takes to actually set up the deal. In some cases the fee can reach four figures. Be careful to do your sums properly and work out exactly what you will pay: some deals may not charge an arrangement fee but actually work out more expensive, by the time all costs and the interest rate have been factored in, than one that charges a seemingly extortionate arrangement fee.

• Introductory offers and step deals

Mortgage providers are like any other business in that they know the value of advertising to draw in customers. They also know the first thing anyone will want to know is the interest rate they will be charged for their mortgage. For this reason, some providers will try to lure customers in with an incredibly low advertised rate that often seems too good to be true. Unfortunately it usually is.

Some companies will advertise an incredibly low rate, but if you read the small print, this rate will not be valid for the lifetime of the deal. For example, say you see a 3-year, fixed-rate deal advertised at 2.5%; it may sound like a great offer, but on closer inspection it could well be that the 2.5% rate only lasts for the first six-months of the three year term of the deal. Once those six months are up, you could suddenly find yourself paying 6% or 7% for the remaining two and a half years, or face heavy penalty charges if you try to get out of it. Buyer beware!!

• Early repayment charges

A mortgage is a massive debt, and we think that the sooner you get it cleared, the better. However, as far as the bank is concerned, they want you to keep your mortgage for as long as possible so that you keep paying them interest. To try to limit how quickly you can pay off your mortgage, they will very often have early repayment charges.

These charges vary enormously by provider. They will also often be calculated as a percentage of what you overpay – rather than being a flat fee – meaning that the faster you try to repay your mortgage (i.e. the more financially responsible you are!!), the more punitive they are.

According to Mortgage expert David Hollingsworth at London & Country, typical early repayment charges will be up to £500 a month, up to 10% of your annual repayment, or 3-5% of the amount you overpay. For this reason he also warns against tying into a fixed-rate deal for too long: “Be wary of locking in beyond five years,” he advises, “because early repayment charges will limit your flexibility.”

• Stamp duty, searches and conveyancing

Always bear in mind that there are far more costs to buying a house than just your mortgage. Stamp duty, Land registry fees, surveys, conveyancing, broker fees if you use a broker… It is a long list and adds up quickly so be sure to factor them into your budget!!

How do you get a fixed mortgage?

It’s really very simple. Just go to our mortgage comparison service and speak to the excellent mortgage advisers at London & Country. All you need to do is give them details of your earnings and what money you have as a deposit. Let them know that you’re interested in a fixed-rate mortgage and they will go through the best value loans in that sector.

The best fixed-rate mortgage deals now

Check our comparison pages for the best fixed-rate deals around at the moment. If you scroll down the page you will see the best-buy tables including best-buy fixed-rateset mortgages. According to London & Country mortgages, right now some of the best deals come from First Direct. There’s a good 2-year deal at 3.9% or a 3-year one at 4%. The important thing for you, though, is to get in touch with London & Country now to talk through these and other possible options to give you the cheapest and easiest mortgage on the market.

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