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Advantages and Disadvantages of Fixed Rate Mortgages

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: May 30, 2022

As a borrower in the market for a mortgage deal whether you’re a first-time buyer, looking to buy-to-let or seeking to remortgage, fixed rate mortgages can seem like an attractive proposition.

Fixed rate, low interest terms are a good thing for lenders to shout about, allowing them to compete with other lenders for your attention. So it can feel like they’re the only mortgage worth considering.

Let’s take a look at some fixed mortgage pros and cons.

If you’re interested in finding out if, or why, a fixed rate mortgage is a good idea for you, call us on 0808 189 2301 or make a quick online enquiry.

All the mortgage experts we work with are whole of market and work with mortgage lenders across the UK. They can let you know about the best deals around and help you choose a lender with a mortgage which suits your needs.

What are the advantages of fixed rate mortgages?

There are a number of clear pros of a fixed rate mortgage, including…

  1. The interest rate you pay will stay the same for the duration of the fixed rate term, no matter what happens to interest rates.
  2. You can choose how long the interest stays the same by choosing a two-year, three-year, five-year, a few lenders even offer a ten-year fixed term.
  3. Knowing how much your mortgage is going to cost you for a set period of time can offer both security and peace of mind. Because of this, fixed term mortgages can be a particularly good idea for first-time buyers or landlords using buy-to-let mortgages for a new property with, as yet, unknown associated costs.
  4. Since lenders compete on the interest rates they offer on their fixed rate mortgages, you can benefit from some great fixed term deals.
  5. Because interest is calculated on the total sum outstanding, you end up paying the most interest at the beginning of your mortgage. By fixing the interest rate for the first two to five years, you could make big savings with the right deal.

Is a five-year fixed rate mortgage a good idea?

As mentioned above, it’s possible to get a five-year fixed rate mortgage.

If you’re confident about the interest rate on offer and think you’re unlikely to want to pay off your mortgage, sell your house or borrow more money against your mortgage, then a five-year fixed rate mortgage might be a good idea for you.

It’s important to remember that any changes you might want to make during a fixed rate mortgage, could incur hefty fees and penalties.

To make sure you’re making the right decision based on your own circumstances, why not talk to a fixed rate mortgage specialist?

The brokers we work with will be happy to answer any questions you might have, and with their access to the whole market can help find the best mortgage rates for you. Call 0808 189 2301 or make an enquiry online.

What are the advantages of a long term fixed rate mortgage?

One of the overlooked pros of a fixed rate mortgage (particularly if it’s a ten-year fixed rate) is that, in the right circumstances, you could use the fixed rate term to plan for paying off your mortgage completely. With good financial planning, it could be possible to take advantage of competitive rates to ensure that by the end of the fixed term, your mortgage is cleared down.

The ultimate advantage of a fixed rate mortgage

For many borrowers, the ultimate advantage of choosing a fixed rate mortgage is the peace of mind they can bring.

Knowing the exact cost of your mortgage for a fixed period of time brings with it a degree of financial security which could not be achieved with a variable rate mortgage.

Are fixed rate mortgages a good idea for me?

The amount of deposit you have available, the amount you need to borrow and your overall income and affordability will all play a role in how easy you will find it to secure a fixed term mortgage at the most competitive rate.

Due to sometimes costly arrangement fees and the inflexibility associated with fixed rate mortgages, if you’re after a relatively small mortgage, you might find it more cost effective to choose a higher rate, but with a lower fee, or possibly even no fee.

To find out if a fixed rate mortgage is a good idea for your own circumstances, talk to a mortgage advisor.

Call us on 0808 189 2301 or make an online enquiry today.

The brokers we work with have whole of market experience and will be able to help you weigh up the advantages and disadvantages of a fixed term mortgage based on your own financial situation.

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Disadvantages of fixed rate mortgages

It’s important to familiarise yourself with the potential drawbacks of a fixed rate mortgage before taking one out, and weigh them up against the advantages.

  1. Expensive arrangement fees – while lenders holler about their brilliant rock-bottom fixed interest rates, what they’re not so keen to shout about are the expensive arrangement fees which can come as a surprise to some borrowers. If you’re taking out a five-year term, these costs might be worth swallowing but beware expensive costs on two or three year fixed term mortgages as the attractive interest rate may be negated if associated fees are inflated.
  2. Loss of flexibility – one major disadvantage of a fixed rate mortgage loan is the loss of flexibility. If you take out a fixed term mortgage, you should be as certain as possible you’re going to stay in your existing property for the duration of the fixed rate term. While fixed rate mortgages are transferable, actually making a transfer can come with some high costs since you’ll effectively have to re-apply for your mortgage again.
  3. Early repayment charges – if you have a fixed rate mortgage and want to make any changes, from paying off the mortgage early to leaving the mortgage for a different mortgage or even applying to increase the amount borrowed against the loan, you will need to factor in the Early Repayment Charge or ERC. The costs of an early repayment penalty will vary from lender to lender but is usually charged as a percentage of the outstanding debt, and often reduces over time.
  4. You’ll lose out if interest rates fall – if interest rates fall while you’re in a fixed rate mortgage, your rate will remain the same. In the worst case scenario, you could end up paying more than you need to for months, or even years.
  5. Unattractive terms when fixed rate ends – beware fixed rate loans which extend beyond the fixed term period. Some lenders may apply terms to seemingly attractive fixed interest mortgages which can be hugely costly and prohibitive. For example, you may automatically get stuck into your lender’s uncompetitive variable rate once the fixed term ends. This is why most experts would recommend shopping around for a remortgage 2-3 months before your fixed rate period is due to end. This is usually called an extended redemption penalty or tie-in. Watch out for these when you sign up to any fixed term mortgage.

The ultimate disadvantage of a fixed rate mortgage

The number one disadvantage is that you could end up paying more than on other mortgages if interest rates do not increase.

If you think there’s even the slightest chance you might want to change anything about your mortgage terms, such as increasing the amount you’re borrowing, changing the names on the mortgage or even paying off the mortgage early,  you could be better off with a more flexible mortgage which allows you to make such changes.

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What is the advantage of a fixed rate mortgage over a variable rate mortgage?

The main advantage of a fixed rate mortgage over a variable rate mortgage is knowing exactly how much your mortgage will cost each month for a set period.

With a variable rate mortgage, the interest rate, and therefore your monthly mortgage repayments, can, and will, fluctuate throughout the duration of the mortgage. If interest rates increase you could end up paying more on a variable rate mortgage.

Since interest rates can vary on a daily basis when you have a variable mortgage, they can feel like a bit of a gamble. In the best circumstances, you could end up saving on a variable mortgage but if interest rates rise, you could end up having to pay really high interest, which could come as quite a nasty surprise, if you were unprepared for it.

Ask an expert mortgage advisor if a fixed rate mortgage is a good or bad choice for you

There’s a lot to consider when you’re deciding whether to take on a fixed rate mortgage.

If you’re still wondering if a fixed rate mortgage is a good idea for you or you’ve already decided and are keen to find the best deal available, talk to one of the whole of market mortgage advisors we work with.

Call us on 0808 189 2301 or make an enquiry and we’ll connect you with an experienced broker. The mortgage specialists we work with have access to all the UK lenders and will be able to advise which mortgages might be most suitable for you.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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