Fixed Rate Mortgage

A fixed rate mortgage, as the name suggests, is a mortgage where you
repay the same amount every month. This means that for a fixed period
of time you will be able to accurately budget your repayments, as you
will know exactly how much you are repaying.

Most people opt to fix their repayment rate for between one and five
years, though many banks offer longer fixed rate periods. Fixed rate
mortgages are particularly popular during periods where it looks likely
that interest rates are about to rise.

Of course, compared to standard variable rate mortgages, you also risk
paying more if interest rates drop once you have taken out a fixed rate
mortgage. If you want to get out of your current fixed rate mortgage
and change to a standard variable rate mortgage you will have to bear
in mind how much the redemption penalties will be compared to the
overall savings you will make.

The amount you pay for your redemption penalty usually will decrease
the longer you have had your mortgage. It is important to be wary of very
low fixed rate mortgages, as the contract may tie you to the lender's
particular standard variable rate for a period following your fixed rate
mortgage period. Capped rate mortgages are a special type of mortgage
where you will never pay more than a specified upper limit on your
repayments. If, however, interest rates drop, then the interest rates
you pay on mortgage are also likely to drop.

A discounted rate mortgage is a mortgage where you have a fixed period
during which your repayment rate will be reduced.

It is important to note that some capped fixed rate mortgages have
stipulations, whereby even if rates drop significantly, your mortgage
interest rates will not drop, correspondingly, beyond a certain point.
This is referred to a 'collar' within the mortgage.