Increased competition amongst mortgage lenders is ever-intensifying, and as such is driving many mortgage rates lower and lower. However, the lowest mortgage rate does not necessarily translate into the best deal in the long run. There are numerous other factors that you will need to take into consideration when taking out a mortgage product, so many people do their research rather than saying yes to the first deal they’re offered. In this article we’ll take a look at fixed-rate mortgages, and the factors that could impact your decision when looking for this type of product.

First things first…

UK mortgage rates are not only determined by the mortgage provider, they are also significantly influenced by the Bank of England’s base rate. When this rises, mortgage rates can rise too. It has been ten years since the Bank of England last raised the Base Rate, and it currently sits at a record low of 0.25%. However, increasing worries around debt in the economy have spurred fresh speculation that interest rates may rise sooner than expected. Some people keep an eye on UK interest rates if they are considering taking out a new mortgage product.

What is a fixed-rate mortgage?

When shopping for a mortgage product, there are some possible options available to you. One option is the fixed-rate mortgage, which comes with an interest rate that will not change for the initial term of the deal (hence, fixed-rate).

The great thing about this type of mortgage is that you could be making the same payment every month for the term of the fixed rate. This could make it an ideal choice for anyone who wants security over the cost of their mortgage payments. If you’re on a strict monthly budget and don’t want to have sleepless nights over the chance of rates going up, this could be the option for you. On the flip side, if interest rates were to fall, you may not feel the benefit.

Many people note that fixed-rate mortgages may come with higher exit fees, and this is one thing you could take note of when considering a fixed-rate mortgage.

How do fixed-rate mortgages work?

Fixed-rate mortgages generally last for two, three or five year terms, although it is possible to opt for even longer periods. The interest rate you pay vary depending on the term of the mortgage. The interest rates on a two-year mortgage will potentially be cheapest, a three-year may be slightly higher, and a five-year possibly higher again.

At the end of your fixed-rate period, you may be transferred to your provider’s standard variable rate, which can be higher than the rate you were previously on. This switch to SVR is one reason for homeowners to remortgage.

So, why is the lowest rate not always the best?

Our advisers say this on a daily basis - “It’s not always about rate!” There are many other things to factor in when taking out a mortgage, so try not to be dazzled by a seemingly appealing deal with super low rates. Talking to a mortgage broker can help figure out the overall cost of any deal you are considering.

Lenders may potentially add extra charges to their mortgage deals, and these can include arrangement fees. Arrangement fees can sting, and can carry a weight of up to £2,500. In addition to arrangement fees, fixed-rate mortgages potentially come with hefty exit fees. This means that if your head gets turned by a better deal midway through your term, paying off the mortgage early will possibly result in penalties.

Many people take into consideration the loan-to-value of your mortgage. Some of the lowest interest rates are available on mortgages up to 60% LTV - that is, to people who can possibly afford a deposit equal to 40% of the price of the property.

So, what next?

Whenever you are considering taking out a mortgage product, a lot of people consult a mortgage broker before making any decisions. Brokers have access to mortgage information from a huge array of lenders, not just the high street banks, and they are experts in their field. Mortgages can be confusing at the best of times, so could be wise to consult someone who lives and breathes them!

Whether you speak to a professional face-to-face or even over the phone, they will ensure that you find the right deal for you and your circumstances. They will be able to walk you through everything, the difference between big banks, credit unions and mortgage companies, the pros and cons of each product, and of course, what would happen if, in the worst case, you have to break your mortgage contract. Once you know more about what you’re getting into, you may be more confident about making the right decision.

If you’re thinking of taking out a fixed rate mortgage, speak to an Eddison Wells Mortgage Advisor now on 0800 808 9981. Eddison Wells is a mortgage brokerage - with a wealth of knowledge, their team is well placed to provide a comprehensive range of financial products. Providing the highest quality service at the most affordable price is a prerequisite and a firm ethos.