Fixed-rate mortgages are typically popular in times of rising interest rates and if you’re on a tight budget, they’re often the ones to choose.

A fixed rate mortgage has a fixed interest rate for a set amount of time, (for example two, three or five year mortgages). This means your mortgage payments will be exactly the same each month, until the fixed rate period expires, after which you typically revert to the Standard Variable Rate. Expect to be tied in for 2-3 years, on the Standard Variable Rate (SVR), after your fixed rate term has expired. You typically have to pay an Early Repayment Charge (ERC) within this tie in period.

A fixed rate mortgage option is an excellent choice if your budget is tight and you need to know exactly how much you will be spending each month for this reason it is very popular amongst first time buyers.

It’s also worth considering fixed rate mortgages when interest rates look like they may be on the increase: if you believe rates will rise in the near future, fixing your interest rate could save you money and help you sleep soundly. However, this can also work the other way round and you could end up paying far more than your neighbours should rates suddenly plummet.

Fixed rate loans – Fixed rate period

When comparing fixed rates, look at how long they are fixed for. A one year fixed rate with a tie in on the SVR until year five versus a three year fixed rate where you revert to SVR until year five is likely to be cheaper particularly when interest rates look to rise since the lender knows they have you tied in for another 4 years.

At the end of the day, you have to use your own judgement as to how long to go for. You may feel it particularly important that your outgoings remain constant and choose five or more years, whereas if you think interest rates may fall, you may wish to go with a two year fixed rate mortgage deal.

Redemption Penalties

Find out how long the Early Redemption Charge/tie-in is for your mortgage, a great fixed rate where you’re then tied in on an exceptionally high Variable Rate may not look as attractive as you once thought.

Early Redemption Charges are what your mortgage lender would charge you should you leave or pay off your mortgage prior to your agreed tie in period. This is usually a percentage of the outstanding mortgage, and can equate to thousands of dollars, so it’s worth making sure you’re aware of these potential penalties.

Use our mortgage enquiry form on the left side of this page to enquire about the best fixed rate for you.