RE-MORTGAGING? SHOULD YOU CHOOSE A FIXED OR VARIABLE RATE MORTGAGE?

Re-mortgaging? Should you Choose a Fixed or Variable Rate Mortgage?

1.4 million households fixed mortgage deals will be coming to an end in 2023 according to the office of National Statistics,  and these home owners will be facing higher interest rates. The question many people are asking is “will interest rates come down” and if so, should I fix my mortgage at the current rates or chose a variable rate mortgage.

One of the most important decisions you’ll make when buying or remortgaging a home is choosing between a fixed-rate mortgage and a variable-rate mortgage. Both have their pros and cons, and the decision ultimately comes down to your financial goals and risk tolerance.

Fixed-Rate Mortgage

A fixed-rate mortgage is a type of mortgage in which the interest rate remains the same throughout the fixed rate deal. This means that your monthly mortgage payment will be the same every month for the duration of the fixed term, typically 3 or 5 year, but can be as long as 10 years.

Pros:

·  Predictable payments: With a fixed-rate mortgage, you know exactly what your monthly payment will be for the duration of the mortgage deal. This makes budgeting easier and provides peace of mind.

·  Protection against rising interest rates: If interest rates rise, your mortgage payment will not change. This can be a significant advantage if you’re on a tight budget.

·  No surprises: With a fixed-rate mortgage, you won’t have to worry about unexpected increases in your monthly payment, which can happen with a variable-rate mortgage.

Cons:

·  Higher initial rate: Fixed-rate mortgages typically have higher interest rates than variable-rate mortgages, which can make your monthly payment higher.

·  Limited flexibility: With a fixed-rate mortgage, you won’t be able to take advantage of lower interest rates if they become available.

Variable-Rate Mortgage

A variable-rate mortgage is a type of mortgage in which the interest rate can fluctuate over the life of the loan. This means that your monthly mortgage payment can go up or down depending on changes in the market.

Pros:

·  Lower initial rate: Variable-rate mortgages typically have lower interest rates than fixed-rate mortgages, which can make your monthly payment lower.

·  Potential savings: If interest rates go down, your mortgage payment will go down, which can save you money over the life of the loan.

·  Flexibility: With a variable-rate mortgage, you may have the option to pay off your loan faster, as you can take advantage of lower interest rates.

Cons:

·  Uncertainty: With a variable-rate mortgage, your monthly payment can change at any time, which can be stressful for some homeowners.

·  Risk of higher payments: If interest rates rise, your mortgage payment will go up, which can put a strain on your budget.

·  Harder to budget: With a variable-rate mortgage, it’s harder to predict what your monthly payment will be, which can make budgeting more difficult.

Which is Right for You?

The decision to choose a fixed-rate or variable-rate mortgage ultimately comes down to your financial goals and risk tolerance. If you prefer predictability and want to protect against rising interest rates, a fixed-rate mortgage may be right for you. If you’re comfortable with some uncertainty and want the potential to save money if interest rates go down, a variable-rate mortgage may be a better option.