|
The two main options for consumers are variable or fixed interest rates.
- Variable rates can fluctuate in line with European Central Bank (ECB) increases or decreases in the base rate, lenders' costs, and market forces.
- Your lender can decide (except in the case of a tracker mortgage) to pass on ECB rate increases or decreases in whole or in part to you.
- Variable rates generally suit you if you are in a financial position where an increase in interest rates would not adversely affect your ability to repay.
- You may also benefit from the fact that, unlike fixed rate mortgages, lenders cannot charge a fee or penalty if you re-mortgage, repay a variable rate mortgage early or voluntarily increase your repayments.
- With a fixed-rate mortgage you undertake to pay a set amount per month for the fixed term and your lender guarantees not to change the interest rate in that time.
- If you are on a fixed rate you will not benefit from any rate cuts that your lender may pass on to variable rate customers, but you will not be subject to any increases either.
- They give you peace of mind if you need to budget your outgoings over a period of time - in other words they offer certainty but may cost you more.
- Fixed rates are commonly available over one, two, three, four, five and ten years.
- Penalties (redemption fees) usually apply if you want to exit early from a fixed-rate mortgage contract.
Note on fixed-rate penalties: If you are in a fixed rate contract there are usually penalties if you want to switch lenders, switch to a variable rate, re-mortgage or pay off all or part of your mortgage early. You should be aware of these penalties before you sign up to a fixed-rate contract. |
