Pro1 - You are guaranteed peace of mind and a good nights sleep due to the fact you are immune to interest rate hikes.
Pro2 - Steady payments - same payment every single month so you know exactly where you stand financially.
Pro3 - If you are on a tight budget then you have the advantage of knowing all your monthly outlay.
Pro4 - There’s no risk. A fixed rate mortgage won’t rise rapidly, and leave you shocked at the amount you may have to pay.
Back in ‘98 there was a period when the rates rose by 10% which meant people without a fixed rate mortgage were paying double what they were just a few months ago. Frightening.
Pro5 - The cost is usually lower. SVR (standard variable rate) mortgages are usually offered at slightly higher rates than fixed rate mortgages.
That was the pros, but now here come the cons.
Con1 - They come with redemption penalties. And they are usually 6 months payments if you redeem the mortgage or move house. Nasty!!
Con2 - Prisoner in your own home - A redemption penalty is activated if you want to move home and move lenders. If the redemption penalty is a load of money it could entrap you in your own home like a prisoner.
Con3 - You may lose equity. If you want or need to move, you will have less to put down as you have to shell out 6 months payments. This gives you a lump less to put down on the new place.
Con4 - An increase at the end. You are faced with the prospect of suddenly having to pay more when you go on the lenders SVR when your fixed rate mortgage abruptly stops.
Con5 - Set up charges - There is usually a set up charge for a fixed rate mortgage that you will have to pay the lender.
Con6 - Interest drops. If you are unlucky to be locked in while rates actually drop, you could be paying a fair bit more than people on SVR mortgages.
Summary: Despite the cons my verdict is to stick with the fixed rate mortgage providing you are as certain as you can be that you are not going to redeem the mortgage before the end of the fixed term. On this occasion you can buy peace of mind with a fixed rate mortgage.
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