Most consumers do not want to take any risks and rely on fixed-rate mortgages to finance their property. These are now widely available, but what exactly are fixed-rate mortgages and what needs to be considered?
What is a fixed-rate mortgage?
A fixed-rate mortgage is a secure method of financing a property. The agreed interest rate remains the same over the entire term of the mortgage. During the term, the mortgage cannot be cancelled or repaid. Repayment is possible under certain circumstances however expensive early repayment penalties then apply. With a fixed-rate mortgage, the bank hedges the interest rate before disbursement. In this way a potential loss for the bank can be prevented. When taking out a fixed-rate mortgage, the term of the mortgage is the most important factor. Mortgage terms of between two and 25 years are available.
When choosing a fixed mortgage the following points need to be considered
- Read contract details carefully
Many banks include a right of termination in the contract. This can be useful if the customer has a lower income. If terminated, an early repayment fee may also be incurred.
- Expect the unexpected
Unexpected personal events such as divorce, separation, unemployment or death can lead to premature termination of the mortgage - the resulting penalties can be very expensive.
- Monitor the interest rates trends
Most consumers are familiar with the following phenomenon: they purchase a beautiful but expensive piece of clothing only to find out a week later that the purchased item is now half as expensive. Interest rates can also rise and fall sharply after the contract has been signed. It is therefore not a good idea to take out a mortgage spontaneously - keep an eye on interest rates over a period of time and choose a good moment to take out a fixed-rate mortgage.
- Security or flexibility?
Taking out a fixed-rate mortgage provides security for consumers as the monthly costs can be budgeted for. There is, however, no flexibility should interest rates fall. Moreover, the property cannot be sold during this period without incurring high additional costs.
- Compare interest rates
The offers for fixed-rate mortgages often differ considerably. It is therefore worth comparing these offers carefully so that you do not pay too much for the mortgage.
Experts recommend taking your time when deciding which to go fixed-rate mortgage to go for. This applies especially to the chosen term as well as to the interest rate offered. Remember, it may also be worth looking at the other types of mortgage.