Home  Ask Your Question  Mortgage Glossary 

Slight increases in the interest rates raise your hackles. Tension grips your mind as to how you are going to make the extra payment. Preparations begin right then to provide for the repayment, though it requires a huge cut in the monthly expenses. Cautious is what describes your state. A fixed rate mortgage will be the solution to the stress that they are facing as to the repayment. A Fixed rate mortgage, as the name suggests limits the interest rate to a particular level. The borrower is protected against any increases in the interest rate. He keeps on making a lower repayment, when his contemporaries who did not have a fixed rate to protect them, pay a higher interest. Apart from the savings that a fixed rate results into, it also has an added advantage. The borrower is not required to make regular calculations considering the newer rates. He keeps on paying the same monthly repayment that he paid at the beginning. This however is not free from any disadvantages. We deal with the disadvantages of the fixed rate mortgages in the following paragraphs. A borrower normally opts for a fixed rate mortgage to protect him/ her from hikes in interest rates. But they fail to consider a situation when the interest rates start falling. The entire statistics of the borrower fails and he feels cheated. In such a scenario he is left with no options except to continue making the repayments, or look for refinancing the mortgage through remortgage. Continuing with the repayments will mean that the mortgagor pays higher than what he actually owes. Even remortgaging will not produce the desired results. The lenders accept to remortgage the fixed rate mortgage only when they find it having some potential. Also the borrower will have to accept the remortgage at the lenders terms. This means that the borrower will have to face a loss in both the cases whether he chooses to continue repaying or he goes for a remortgage. The second drawback of a fixed rate mortgage is that the rate of interest is not kept fixed for the entire period of repayment. The interest rate is fixed for the initial few years. After that the borrower has to pay a repayment according to the interest rate prevailing in the market. Other alternative interest rates can be tried to get the optimum method of charging interest. The other methods commonly utilized are as follows: Variable interest rate Capped rate Discount rate Tracker rate Thus the next time you plan to take a mortgage, take stock of the various interest options available. You dont have to stick to the variable interest rate. Neither is fixed rate the only option available to you. Capped rate, discounted rates and tracker rates can also be taken to suit the situation one is in. Andrew baker has done his masters in finance from CPIT. He is engaged in providing free, professional, and independent advice to the residents of the UK.He works for the personal loan web site ukfinanceworld for any type of Uk secured loans and unsecured loan please visit http://www.ukfinancworld.co.uk See Also: Mortgage Loan Basics: Interest Only Loans, Pay Option ARM Selecting the Right Mortgage for You Do Your Homework  Find the Mortgage That Fits Your Lifestyle and Your Budget 4 Ways To A Low Mortgage Interest Rate 




ExplainingMortgages © 2005  2009