Should I take out a fixed-rate mortgage?

Deciding which type of mortgage to take out can be a difficult decision – especially taking the recent base rate cut into consideration. Your choice of mortgage can potentially save you a lot of money in the long run – or it could cost you more, depending on which way the base rate goes.

Fixed-rate mortgages are a popular choice amongst homeowners, since they ensure you consistently pay the same amount over a set period of time. But are they necessarily a good choice in current housing market conditions?

Advantages of a fixed-rate mortgage

Offers security. You know how much you will pay towards your mortgage every month – unlike variable-rate mortgages, which are liable to change.
Increases in the base rate will not affect your mortgage – meaning you could save money compared with a variable-rate mortgage.

Disadvantages of a fixed-rate mortgage

You will normally have to pay a mortgage arrangement fee. These are normally a few hundred pounds, but for the very best mortgage deals you may have to pay over £1000.

It is common to spread the mortgage arrangement fee across your mortgage payments – but this will of course mean higher monthly payments.

Just as it is possible to save money, a fixed-rate mortgage could potentially end up costing you more than if you had chosen a variable-rate mortgage. Even if interest rates fall, your mortgage payments will remain the same.

Fixed-rate mortgage in the current housing market

With the base rate recently falling to 3%, and several signs pointing towards further cuts, fixing your interest rate at a level above the current base rate may seem illogical. However, while a fixed-rate mortgage may cost you more in the short term, it’s important to remember that the base rate could go up again.

In short, it’s impossible to predict with 100% certainty what the base rate will do, so choosing a certain type of mortgage is always a gamble, whatever your decision.

Even if you pay more than would have on a variable-rate mortgage for the first few months, a fixed-rate could save you money in the future. Your decision on a fixed-rate mortgage will depend on whether or not you think that may be the case – and how able you are to cope with any changes in your monthly payments.