This
type of mortgage is where you and the
mortgage
lender agree to fix the interest rate owed
on your loan for a set period of time.
The
period of time is usually between 1 and
5 years but could be longer. (That simply depends on the exact
mortgage deal you choose).
After
the agreed period, the interest rate owed on your loan usually reverts to the
lender's Variable Rate.
Good
Points: You know exactly what you'll owe. No surprises.
Bad
points:If interest rates drop
you may be paying more than you might have done if you'd gone
for the Variable
Rate. But interest rates might rise... At least you're
not gambling with your home...
If
you want to leave before the agreed term the early redemption penalty
is usually significant. For example you may be charged six months gross interest
if you leave a five-year fixed rate agreement.
Some
penalties
could even go beyond the fixed-rate period. This would be
an "overhanging
redemption penalty". Always read the small print
and ask as many "stupid questions" as you feel like.
You must be clear on what everything means.
