Remortgaging to a fixed rate could help you take control of your money. A fixed-rate remortgaging deal is a very popular choice, especially in times of economic uncertainty when interest rates are especially insecure.
With a fixed-rate mortgage, your interest rate is fixed for an agreed length of time. Mortgage rates are typically fixed for 2-5 years. Your interest rates don’t rise or fall, so you can predict your monthly outgoings and exactly what you'll pay.
If you’re planning to remortgage, you’ll need to know that you’re making the best decision. You want to reduce your debt, pay it back early or get something good out of the agreement. You can choose to remortgage in many different ways, though you might have a fixed-rate mortgage in mind.
A fixed-rate mortgage comes with many benefits, even if you’ve already spent some time on a variable rate.
Read on to find out more in our fixed-rate remortgage guide.
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With a fixed-rate mortgage, your interest rate is fixed for an agreed length of time. Mortgage rates are typically fixed for 2-5 years, though they may be fixed for longer than this. During your mortgage term, you’ll pay exactly the same every month. Your interest rates don’t rise or fall, so you can predict your monthly outgoings and exactly what they’ll take from your pay.
Usually, interest rates rise and fall in line with the Bank of England Base Rate. With other types of mortgage, you’re likely to be making different mortgage payments every month. A fixed-rate mortgage is free from fluctuations, so you’ll pay the same every payday.
A fixed-rate mortgage is a popular choice because it brings predictability. You’ll know exactly how much your mortgage will cost every month. It’s easy to make and stick to your budget, with no unexpected surprises.
Fixed-rate mortgages can be set at relatively high interest rates, though this is a sacrifice many will make to know that their payments won’t rise.
With a fixed-rate mortgage, your monthly price will stay exactly where it is. Whilst this protects you from price rises, it also means that you can’t take advantage of falls. If interest rates drop, you won’t enjoy similar savings.
Many people choose to remortgage to a fixed-rate deal. This might be the case even if you’ve previously been on a variable rate.
It’s possible that you had a variable interest rate and struggled with unpredictable charges, leading you to look for alternatives that feel more financially secure. Many people like the idea of variable mortgages, but soon discover that the changing payments can be a little hard to manage. Variable rates aren’t always practical, especially for those that are pushing the limits of their monthly budget already.
It’s possible that you’ve had a variable rate but found that prices rise more than they drop. Variable mortgages can be more expensive than the fixed rate if interest rates rise. If you’re planning to remortgage to save money, it’s worth comparing a fixed-rate mortgage to the highest interest rates you’ve been charged on a variable mortgage.
You may also choose to remortgage from one fixed rate to another when your original fixed-rate term has run out, and you’re due to be switched by your lender. Usually, lenders will automatically move customers to their standard variable rate.
The standard variable rate is often quite expensive, with better rates found easily elsewhere, though it typically comes without early repayment charges. If you’re about to be moved or have recently been moved to a standard variable rate, remortgaging can help you get fixed interest rates for the foreseeable future.
In times of economic uncertainty, a fixed-rate mortgage can be very reassuring. If you’re worried about rising interest rates, it may work in your favour to remortgage to a fixed rate and lock in your monthly payments.
For this example, we’ve chosen a typical variable mortgage rate at the interest rate of 1% versus a fixed rate of 1.33%. Here’s what happens if the variable mortgage rate were to rise to 2% after two years. This is on a £125,000 repayment mortgage for five years.
|Mortgage||Monthly Repayments||The amount repaid (of debt) after 5 years||Interest paid after 5 years|
|Fixed-rate - 1.33%||£490||£21,787||£7,613|
1% for 24 months
2% for 36 months
|£471 for 24 months
£525 for 36 months
Numbers compiled by Money Savings Advice
Here, you can see that a fixed rate works out better – over five years you’ve paid off almost £600 of your mortgage but, more importantly, save almost £1,500 in interest payments. Of course, a jump of 1% may not happen – so it’s up to you to decide what is best.
If you’re not free of any existing mortgage term, consider the costs of remortgaging. Many mortgages have early repayment charges that could cost thousands of pounds. If you’re planning to move to a better deal, those early repayment fees could wipe out any savings you’d be making.
Most people choose a fixed rate remortgage because they need more financial security, or because they’ve found that money has been tighter than they’d like in the past. Taking on the costs of early repayment may be counter-productive, so always consider the fees you’ll be charged and whether they’ll make things even worse.
Once you’re locked into a fixed-rate mortgage, there are penalties for getting out early. This means that you’ll want to choose the right fixed rate mortgage term. Usually, people remortgage over 2, 5 or 10 years.
Longer fixed-rate mortgages give you more security but can have higher interest rates. This is because lenders must lock your rates through a decade of economic fluctuations. Nobody can plan ten years ahead, so lenders need to be absolutely sure that they won’t lose too much money.
A shorter mortgage term may come with lower interest rates, but also has its fair share of drawbacks. Depending on the future economic situation, you may regret your choice in a few years if interest rates have risen a lot.
You might want to choose a shorter term if you’re remortgaging your property, but know that you want to move somewhere new in a couple of years. You might also choose this option if you believe that interest rates are likely to drop, making future mortgages significantly cheaper than the rates that you’re currently offered.
Lenders usually reserve the best remortgaging deals for those with a lower LTV – or loan-to-value – requirement. If you’ve already cleared a significant chunk of your mortgage debt, or your house value has skyrocketed, it’s very likely that you’ll get lower interest rates and a better fixed rate mortgage deal.
Usually, the lowest rates are offered to those borrowing less than 60% of their property’s value. Remortgaging to a fixed rate can come with many benefits, even when you’re quite some way into the process of clearing your debt.
You might find that a fixed-rate mortgage is a cheapest and most secure option, but it’s worth looking at all your options before you make a final decision.
When you’ve chosen to remortgage, you’ll need to decide if a fixed rate’s the right choice for you. You’ll give up your chance to benefit from falling interest rates, and you might pay more overall for your home, but in exchange, you’ll gain financial security and a predictable budget.
You might also protect yourself from rising interest rates if they’d make your mortgage more expensive.
Here at Money Savings Advice, we have partnered with some of the UK’s leading mortgage brokers. They have already helped thousands of people get the best remortgage deal and they can do the same for you.
Choosing an independent adviser means they won’t recommend a mortgage unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
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