Whenever it's time to change or apply for a mortgage, this question will come up: what's better—fixed or variable? Which is safer or has the best value? Here's a list of pros and cons for both so you can make the right decision for you when talking to mortgage services.
Fixed Rate Mortgage
With a fixed rate mortgage, the interest rate applied is fixed, which means the first payment you make will be the same as the last payment you make during the set fixed term. Depending on how long you fix the term for, different rates are available. The longer the fix, the better the rate.
Pros of Fixed Rates
The rate is the same, so the amount you pay every month is the same.
If you have a job where you don't have a fixed income every month, knowing exactly what you need without the fear of the amount changing will be a huge weight off your mind.
Cons of Fixed Rates
If mortgage rates plummet for everyone else, you are still tied to your fixed rate. The safety of knowing what you pay and not having your payments go up also means that they can't come down either.
Your rate is fixed for a set period. You cannot change your mortgage until the fixed period ends, unless you want to pay penalty fees for leaving.
Variable Rate Mortgage
Variable rates can go up and down. Your mortgage repayment is not a set amount. That can be great while the rates are low, but if they go up, the problem is that you are expected to pay more on your mortgage.
Pros of Variable Rates
When the rate is low, your repayments are low. You have more cash available to save or go on that dream holiday.
Making overpayments could be easier. If the rate lowers, you can keep your repayments the same as you can afford them and reduce the length of your mortgage.
Variable rates aren't usually set in stone, so you can get out reasonably easily if needed.
Cons of Variable Rates
You can't plan easily for the amount of money needed each month. If you wanted to take a risk on a new job that paid a little less, you might not be able to afford your repayments if the rate goes up.
If you do need to get out of a variable rate because the rate is going up, you are likely to fix yourself on a high rate for a long period.
Always speak to a professional mortgage service to ensure you know all of your options when it comes to mortgage rates. And look out for when there are low mortgage rates. If you can get in at a time when rates are low, you will save money on either a fixed or variable mortgage rate.