20 Jun, 2019

What is the difference between a fixed and variable rate mortgage?

When you take out a mortgage, you might have the option to get a fixed rate for a period. Many people, will opt for fixed rates as the amount you pay monthly is fixed for the period that is agreed, meaning that if rates go up you don’t feel the effects of this as the amount you pay stays constant. Due to the nature of a fixed rate, repayments are set and as such there is generally limitations on overpayment and some lenders will not allow any overpayment, others will allow limited overpayment. If you overpay while on a fixed rate and this is outside of the lenders terms then you could incur a break penalty and break out of the fixed period. This allows you to budget and plan for other life events that might happen in this time such as holidays, Christmas or a trip down the aisle!
You could also opt for a variable rate loan which means that the amount that you pay might go up or down without your control depending on variable rates at the time. However, a variable rate will allow you to pay off more on your mortgage or avail of a fall in your mortgage if interest rates fall and the decrease is passed on by the lender.
You may also be able to split your mortgage so that some of it in on a fixed rate and some of it is on a variable rate.
The main thing to consider when deciding between the rates is the amount of risk you are willing to take, specifically if variable rates rise can you afford a jump in your monthly repayments? What will you have to sacrifice every month if that happens? Here at doddl, our experienced advisors can help you talk through your options and help you chose the right product for you!

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