If rates do turn out to be on the up, now might be a good time to take advantage of a fixed rate mortgage deal, like the 0.99% 18 month deal recently announces by one major lender. Like most things in life, there are some pros and cons to consider before deciding what’s right for you.
A big pro is peace of mind – nobody knows where rates are headed, but if you’ve fixed your rate for whatever period, you know what you’ll be paying and you know there will be no nasty shocks, at least for a while.
The downside comes if rates don’t do what Kristin Forbes expects, and fall – you might find yourself paying more than on a variable rate, unable to take advantage of even lower rates, although when rates don’t have very far to fall, this isn’t necessarily a deal breaker.
But, although you may not have a crystal ball to tell you where rates are going, it still pays to look ahead. What you do know about the future is that a fixed rate period is … well … fixed. One day, it will end and you may well find yourself on your provider’s standard variable rate. Forget that and you might be in for a nasty surprise at the end of the fixed term.
Think ahead and plan your next move, though, and you might be in a position to re-mortgage and take advantage of another good deal.
The headline interest rate isn’t the only thing that affects how much of your hard-earned cash you end up handing over. Fixed rate mortgages can have high arrangement fees, which might make them a poor choice for a small mortgage. If you do move at the end of one fixed term, a hefty arrangement fee could easily gobble up a lot of the money you were hoping to save by moving from one fixed low rate to another.
How long do you want to fix your rate for? Again, there are pros and cons. The longer the period, the longer you’ll be certain about how much you’ll be paying out and the longer it will be before you need to pay another arrangement fee. But if you’re tied in for too long, you could lose the opportunity to take advantage of a dip in rates, or a better deal that comes along.
The members of the Monetary Policy Committee get paid good money to make educated guesses about where interest rates are going, but even they don’t have functioning crystal balls. As a Nobel Prize-winning physicist once said “It’s hard to make predictions, especially about the future.” But that doesn’t mean you can’t plan ahead and make an informed choice about your mortgage, or speak to a professional who knows the market and can help you to make that choice the right one for you.