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.
You know exactly what you’ll owe. No surprises.
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 like. You must be clear on what everything means.